MDS ENERGY PUBLIC 2013-A LP - FORM 10-Q - May 15, 2015

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EX-31.2 - EXHIBIT 31.2 - MDS ENERGY PUBLIC 2013-A LPt82327_ex31-2.htm

United States
Securities and Exchange Commission
Washington, D.C. 20549
 
 
Form 10-Q
 
 
(Mark One)
x       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2015
 
o       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ___________
 
 
MDS ENERGY PUBLIC 2013 - A LP
(Name of small business issuer in its charter)
 

Delaware
  
90-0852601
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
     
409 Butler Road
    
Suite A
    
Kittanning, PA
  
16201
(Address of principal executive offices)
  
(zip code)
 
Issuer’s telephone number, including area code: (855) 807-0807
 
 
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 o
 
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 o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
       
Large accelerated filer
o
Accelerated filer
o
       
Non-accelerated filer
o
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
As of March 31, 2015 this Partnership had 1,508.53 units of limited partnership interest outstanding.
 
 
 

 


MDS ENERGY PUBLIC 2013 – A LP
(A Delaware Limited Partnership)
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
 
Implications of Being an Emerging Growth Company
         
     
PAGE
         
     
         
 
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CERTIFICATIONS
      
 
 
 

 

 
IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY.
 
The Jumpstart Our Business Startups Act (the “JOBS Act”) became law in April 2012. The Partnership is an “emerging growth Company” as defined in the JOBS Act, and it is eligible for certain exemptions from, or reduced disclosure obligations relating to, various reporting requirements that usually apply to public companies.
 
These exemptions include, among others, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, any requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”) which require mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor must provide additional information about the audit and the issuer’s financial statements, nor with new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. The Partnership has not yet decided whether to use any or all of the exemptions.
 
Additionally, under Section 107 of the JOBS Act, an “emerging growth company” is eligible for the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 (the “Act”) to comply with new or revised accounting standards. This means an “emerging growth company” can delay adopting certain accounting standards until those standards otherwise become applicable to private companies. However, the Partnership is electing to “opt out” of that extended transition period, and therefore will comply with new or revised accounting standards on the dates the standards are required for non-emerging growth companies. Section 107 of the JOBS Act provides that the Partnership’s decision to opt out of the extended transition period for compliance with new or revised accounting standards is irrevocable.
 
The Partnership could continue to be an “emerging growth company” until the earliest of:
 
 
(iv)
the last day of the first fiscal year in which it has total annual gross revenue of $1 billion or more;
 
 
(ii)
the last day of the fiscal year following the fifth anniversary of the date of the first sale of its units pursuant to its prospectus and Registration Statement with the SEC;
 
 
(iii)
the date that it becomes a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the “Exchange Act”), which would occur if the market value of its units held by non-affiliates exceeds $700 million, measured as of the last business day of its most recently completed second fiscal quarter; or
 
 
(iv)
the date on which it has, during the preceding three year period, issued more than $1 billion in non-convertible debt.
 
The Partnership anticipates that it will continue to be an emerging growth company until the termination of the five year period described in (ii), above.
 
 
 

 

 
Part I. FINANCIAL INFORMATION
 
Item 1. Financial Statements:
 
MDS ENERGY PUBLIC 2013-A LP
Condensed Balance Sheet
                 
   
March 31, 2015
(Unaudited)
    
December 31, 2014
Derived from Audited Statements
  
Assets
            
Current Assets
            
Cash and Cash Equivalents
   $ 432     $ 18,264  
Accounts Receivable and Due from Managing Partner
     164,781       219,995  
Total Current Assets
     165,213       238,259  
                 
Oil and Gas properties, net
     6,265,001       6,431,436  
                 
Total Assets
   $ 6,430,214     $ 6,669,695  
                 
Liabilities and Partners’ Equity
                
Accrued Expenses
   $ 114,775     $ 104,527  
                 
Asset Retirement Obligations
     130,481       129,630  
                 
Partners’ Equity
     6,184,958       6,435,538  
                 
Total Liabilities and Partners’ Equity
   $ 6,430,214     $ 6,669,695  
                 
The accompanying notes are an integral part of these financial statements
 
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MDS ENERGY PUBLIC 2013-A LP
Statement of Operations
(unaudited)
                 
   
For the Three Months Ended
March 31
  
   
2015
    
2014
  
Gas Revenue
   $ 206,689     $ -  
                 
Expenses
                
Gathering Expense
     37,942       -  
Well Maintenance
     47,293       -  
DD&A Expense
     167,286       -  
Impact Fee
     51,373       -  
Professional Fees
     25,000       -  
Total Expenses
     328,894       -  
Operating (Loss) Income
     (122,205 )     -  
                 
Other Income
     -       157  
Net (Loss) Income
   $ (122,205 )   $ 157  
 
The accompanying notes are an integral part of these unaudited financial statements
 
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MDS ENERGY PUBLIC 2013-A LP
For the Three Months Ended March 31, 2015
(unaudited)
                         
   
Investor
Partners
    
Managing General
Partner
    
Total
  
Balance at December 31, 2014
   $ 7,529,923     $ (1,094,385 )   $ 6,435,538  
                         
Distributions
     (130,277 )     1,902       (128,375 )
                         
Net Loss
     (102,506 )     (19,699 )     (122,205 )
                         
Balance at March 31, 2015
   $ 7,297,140     $ (1,112,182 )   $ 6,184,958  
 
The accompanying notes are an integral part of these unaudited financial statements
 
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MDS ENERGY PUBLIC 2013-A LP
Statement of Cash Flows
(unaudited)
                 
   
For the Three Months Ended
March 31
  
   
2015
    
2014
  
Cash flows from Operating activities
            
             
Net (Loss) Income
   $ (122,205 )   $ 157  
Adjustments to reconcile net (loss) income to cash provided by operating activities
                
Depletion
     166,435       -  
Accretion
     851       -  
Total adjustments to net (loss) income to reconcile to net cash provided by operating activities
     45,081       157  
Changes in assets and liabilities
                
Accounts Receivable and Due from Managing General Partner
     55,214       -  
Accrued Expenses
     10,248       -  
Net cash provided by operating activities
     110,543       157  
                 
Cash flows from investing activities
                
Drilling Advances paid to the Managing General Partner
     -       5,833,935  
Oil and Gas Properties
     -       (5,833,935 )
Net cash used for investing activities
     -       -  
                 
Cash flows from financing activities
                
Collection of Subscription Receivable
     -       1,048,263  
Distributions
     (128,375 )     -  
Repayments to the Managing General Partner
     -       (2,361,101 )
Net cash used in financing activities
     (128,375 )     (1,312,838 )
                 
Net change in cash and cash equivalents
     (17,832 )     (1,312,681 )
Cash and cash equivalents at beginning of period
     18,264       1,312,723  
                 
Cash and cash equivalents at end of period
   $ 432     $ 42  
 
The accompanying notes are an integral part of these unaudited financial statements

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MDS ENERGY PUBLIC 2013-A LP
 
NOTES TO CONDENSED BALANCE SHEETS
MARCH 31, 2015 and DECEMBER 31, 2014 (unaudited)
 
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
 
On May 3, 2012 (date of inception), MDS Energy Public 2013-A LP (Partnership), a Delaware limited partnership, was formed for the purpose of drilling developmental natural gas wells. The Partnership has a maximum 50-year term, although the Partnership intends to terminate when all of the wells invested in by the Partnership become uneconomical to continue to operate, which may be approximately 15 years or longer. The Partnership was formed by MDS Energy Development, LLC (MDS), a related party, as the Managing General Partner and M/D Gas, Inc. (M/D), a related party. In accordance with the terms of the limited partnership agreement, the MGP is authorized to manage all activities of the Partnership and initiates and completes substantially all transactions.
 
In our opinion, the accompanying condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Partnership’s financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in audited financial statements have been condensed or omitted. The information presented in this Quarterly Report on Form 10-Q should be read in conjunction with the Partnership’s audited consolidated financial statements and notes thereto included in its 2014 Form 10-K.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
A summary of significant accounting policies consistently applied by management in the preparation of the accompanying balance sheets follows:
 
Cash and Cash Equivalents - The Partnership’s cash and cash equivalents include cash and interest-bearing money market deposits held by major financial institutions having original maturities of 90 days or less. These amounts may at times be in excess of federally insured amounts.
 
Accounts Receivable – The Partnership records an estimate of revenue to be received in future months for production in the months prior to the end of the reporting period, based upon estimated production information that is available to it. Substantially all of the Partnership’s production is sold to a related party of the Partnership. Management determined that no allowance for uncollectible amounts was necessary at March 31, 2015 and December 31, 2014.
 
 Gas Properties - The Partnership accounts for its natural gas properties under the successful efforts method of accounting. Costs of proved developed producing properties and developmental dry hole costs are capitalized and depreciated or depleted by the unit-of-production method based on estimated proved developed producing reserves. Property acquisition costs are depreciated or depleted on the unit-of-production method based on estimated proved reserves. Leased property was contributed by the managing general partner, and was utilized in the drilling efforts of the Partnership. The Partnership calculates depreciation, depletion and amortization (DD&A) expense by using as the denominator the Partnership’s estimated period-end reserves adjusted to add back current period production. Upon the sale or retirement of significant portions of or complete fields of depreciable or depletable property, the net book value thereof, less proceeds or salvage value, is recognized in the statement of operations as a gain or loss. Upon the sale of individual wells, the proceeds are credited to accumulated DD&A. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs and costs of carrying and retaining unproved properties are expensed.
 
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The estimates of proved reserves are based on quantities of gas that were determined by management engineering and geological analysis demonstrates, with reasonable certainty, to be recoverable from established reservoirs in the future under current operating and economic conditions. Annually, the Partnership will engage independent petroleum engineers to prepare a reserve and economic evaluation of all its properties on a well-by-well basis as of December 31. The process of estimating and evaluating gas reserves is complex, requiring significant decisions in the evaluation of available geological, geophysical, engineering and economic data. The data for a given property may also change substantially over time as a result of numerous factors, including additional development activity, evolving production history and a continual reassessment of the viability of production under changing economic conditions. As a result, revisions in existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the Partnership’s most accurate assessments possible, the subjective decisions and variances in available data for various properties increase the likelihood of significant changes in these estimates. Because estimates of reserves significantly affect the Partnership’s DD&A expense, a change in its estimated reserves could have an effect on its income or loss.

Proved Property Impairment - The Partnership assesses its producing natural gas properties for possible impairment, upon a triggering event, by comparing net capitalized costs to estimated undiscounted future net cash flows on a well by well basis using estimated production based upon prices at which the Partnership reasonably estimates the commodities to be sold. The estimates of future prices may differ from current market prices of natural gas. Certain events, including but not limited to, downward revisions in estimates to the Partnership’s reserve quantities, expectations of falling commodity prices or rising operating costs, could result in a triggering event and, therefore, a possible impairment of the Partnership’s proved crude oil properties. If net capitalized costs exceed undiscounted future net cash flows, the measurement of impairment is based on estimated fair value utilizing a future discounted cash flows analysis, which is predominantly unobservable data or inputs, and is measured by the amount by which the net capitalized costs exceed their fair value. Estimated undiscounted future net cash flows are determined using prices from the forward price curve at the measurement date. Estimated discounted future net cash flows are determined utilizing a risk adjusted discount rate that is based on rates utilized by market participants that are commensurate with the risks inherent in the development of the underlying natural gas reserves. Due to the availability of new reserve information, the Partnership reviewed its proved natural gas properties for impairment at December 31, 2014. The Partnership recognized an impairment of proved properties of approximately $6,629,000 for the year ended December 31, 2014 and no impairment for the three months ended March 31, 2015 or 2014.
 
Production Tax Liability – Production tax liability represents estimated taxes, primarily ad valorem and property to be paid to the states and counties in which the Partnership operates. The Partnership’s share of the tax expense is included in gathering expense. The Partnership’s taxes payable are included in accounts payable on the balance sheets.
 
Asset Retirement Obligations - The Partnership applies the provisions of “Accounting for Asset Retirement Obligations” and “Accounting for Conditional Asset Retirement Obligations” and accounts for asset retirement obligations by recording the fair value of its plugging and abandonment obligations when incurred, which is at the time the well is completely drilled. Upon initial recognition of an asset retirement obligation, the Partnership increases the carrying amount of the long-lived asset by the same amount as the liability. Over time, the asset retirement obligations are accreted, over the estimated life of the related asset, for the change in their present value. The initial capitalized costs are depleted over the useful lives of the related assets, through charges to depreciation, depletion and amortization. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the asset retirement cost. Revisions in estimated liabilities can result from revisions of estimated inflation rates, escalating retirement costs and changes in the estimated timing of settling asset retirement obligations.
 
The MGP has the right to withhold $200 per month of partnership revenues in partnership reserves to cover future plugging and abandonment costs of the well, beginning one year after each partnership well begins producing. This $200 also includes the MGP’s share of revenues. The MGP’s retained revenues will be used exclusively for plugging and abandonment of the well. To the extent any portion of those reserves ultimately is not required for the plugging and abandonment costs of the well it will be returned to the general operating revenue of the Partnership. There were no funds withheld from the Partnership’s revenues for future plugging and abandonment costs during the three months ended March 31, 2015 and the three months ended March 31, 2014.
 
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Additionally, MDS maintains performance bonds for plugging, reclaiming and abandoning of the Partnership’s wells as required by governmental agencies. If a government agency were required to access these performance bonds to cover plugging, reclaiming or abandonment costs on a Partnership well, the Partnership would be obligated to fund any amounts in excess of funds previously withheld by the MGP to cover these expenses.
 
Income Taxes - Since the taxable income or loss of the Partnership is reported in the separate tax returns of the individual partners, no provision has been made for income taxes by the Partnership.
 
Accounting for uncertainty in income taxes requires financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Under this guidance, income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the standard. The Partnership did not have any unrecognized tax benefits, and there was no effect on its financial condition. The Partnership has not identified any uncertain tax positions and as such no interest or penalties have been included in other expense on the statement of operations. The Partnership will file a U.S. federal income tax return, but income will be passed through to the partners.
 
Fair Value Measurement – The Partnership measures assets and liabilities at fair value in accordance with the Codification topic, Fair Value Measurements and Disclosures. This topic defines fair value, establishes a framework for its measurement and requires disclosures regarding the Partnership’s fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amount of the Partnership’s cash and cash equivalents, accounts receivable, drilling advances to Managing General Partner, Due to Managing General Partner and accrued liabilities approximated fair value as of March 31, 2015.
 
Revenue Recognition - Sales of gas are recognized when gas has been delivered to a custody transfer point, persuasive evidence of a sales arrangement exists, the rights and responsibility of ownership pass to the purchaser upon delivery, collection of revenue from the sale is reasonably assured, and the sales price is fixed or determinable. Gas is sold by MDS to Snyder Brothers, Inc., Agent, an affiliated entity, in the market at prevailing prices with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of gas and prevailing supply and demand conditions, so that the price of the gas fluctuates to remain competitive with other available gas supplies. As a result, the Partnership’s revenues from the sale of gas will suffer if market prices decline and benefit if they increase. However, MDS may from time to time enter into derivative agreements, usually with a term of two years or less which may either fix or collar a price in order to reduce market price fluctuations. The Partnership believes that the pricing provisions of its gas contracts are customary in the industry. The Partnership did not enter into derivative agreements for the three months ended March 31, 2015 and the three months ended March 31, 2014.
 
In May 2014, the FASB and the International Accounting Standards Board (“IASB”) issued their converged standard on revenue recognition that provides a single, comprehensive model that entities will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The standard outlines a five-step approach to apply the underlying principle: (a) identify the contract with the customer, (b) identify the separate performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to separate performance obligations and (e) recognize revenue when (or as) each performance obligation is satisfied. The revenue standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and can be adopted under the full retrospective method or simplified transition method. Early adoption is not permitted. We plan to adopt the revenue standard beginning January 1, 2017 and are currently evaluating the impact these changes will have on our condensed consolidated financial statements.
 
Use of Estimates - The Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and expenses and the disclosure of contingent assets and liabilities to prepare these financials statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Estimates of gas reserve quantities provide the basis for calculation of depletion, depreciation, amortization and impairment, each of which represent a significant component of the financial statements.
 
NOTE 3 - CONCENTRATION OF RISK
 
Accounts Receivable – This Partnership’s accounts receivable are from purchasers of natural gas production. The Partnership sells substantially all of its gas production to a customer who purchases from other Partnerships managed by the Partnership’s MGP. Inherent to the Partnership’s industry is the concentration of natural gas sales to a limited number of customers. This industry concentration has the potential to impact the Partnership’s overall exposure to credit risk in that its customers may be similarly affected by the changes in economic and financial condition, commodity prices and other conditions.
 
As of March 31, 2015 and December 31, 2014, the Partnership did not record an allowance for doubtful accounts. In making the estimate for receivables that are uncollectible, the MGP considers, among other things, subsequent collections, historical write-offs and overall creditworthiness of the Partnership’s customers. It is reasonably possible the estimate for uncollectable receivables will change periodically. Historically neither MDS nor any of the other Partnerships managed by the Partnership’s MGP, have experienced uncollectable accounts receivable. The Partnership sold 100% of the accounts receivable to a related party and did not incur any losses on accounts receivable for the three months ended March 31, 2015 or March 31, 2014.
 
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NOTE 4 - PARTICIPATION IN COSTS AND REVENUES
 
As of March 31, 2015, approximately $64,500 of gross revenue from the sale of natural gas had been received or was known with certainty and not distributed, which is 36,000 MCF at an average price per MCF of $1.79. In addition approximately $88,600 of gross revenue from the sale of natural gas had been recorded as revenue as a result of the Partnership estimating revenue not yet received, which is 50,600 MCF at an average price per MCF of $1.75. These amounts are recorded as accounts receivable net of royalties approximating $17,500. The total estimate of expenses to be deducted from those amounts is approximately $80,000, which are typically transportation, well maintenance and lease operating expense. As of March 31, 2014, production had not commenced, therefore, there were no accounts receivable or production costs incurred.

As of December 31, 2014, approximately $250,000 of gross revenue based on approximately 123,000 MCF at an average price per MCF of $2.03 was recorded as accounts receivable net of royalties of $30,000.
 
NOTE 5 – PARTNERS CAPITAL
 
The Partnership Agreement provides that MDS shall review the accounts of the Partnership at least monthly to determine whether cash distributions are appropriate and the amount to be distributed, if any.
 
The Partnership Agreement provides for the enhancement of investor cash distributions if the Partnership does not meet a performance standard defined in the agreement during the first 8 years of operations beginning the earlier of the first full year of operation after all wells begin production or 12 months after the final closing of the Partnership. In general, if the cumulative distributions to the investors is less than 10% of their subscriptions for years 1 through 5 and 7.5% of their subscriptions for years 6 through 8, MDS will subordinate up to 60% of its share, as MGP, of Partnership gross production revenues. As a result of the trend of lower revenue per MCF that the industry is currently experiencing, the MGP has subordinated 60% of it revenue interest beginning in August 2014 and continuing through March 2015. During the quarter ended March 31, 2015 and for the year ended December 31, 2014, MGP subordinated $22,597 and $27,533, respectively, which was distributed to investors.
 
NOTE 6 – TRANSFERS AND PRESENTATIONS
 
There is no established public trading market for the Partnership’s units and the Partnership does not anticipate that a market for the Partnership’s units will develop. The Partnership’s units may be transferred only in accordance with the provisions of the Partnership Agreement which require:
 
 
●
the MGP may require an opinion of counsel that registration under applicable federal and state law is not required;
 
●
the transfer not result in materially adverse tax consequences to the Partnership; and
 
●
the transfer must not contravene any terms of the Partnership Agreement.
 
An assignee of a unit may become a substituted partner only upon meeting the following conditions:
 
 
●
the assignor gives the assignee the right;
 
●
the assignee pays to the Partnership all costs and expenses incurred in connection with the substitution; and
 
●
the assignee executes and delivers the instruments, which the MGP requires to effect the substitution and to confirm his or her agreement to be bound by the terms of the Partnership Agreement.
 
A substitute partner is entitled to all of the rights of full ownership of the assigned units, including the right to vote.
 
Investor Partners may request that the MGP repurchase their units at any time beginning with the fifth anniversary after December 31, 2013 provided that certain conditions are met. The repurchase price is set at the greater of the partner’s share of (i) predominantly 70% of the Partnership’s present worth of future net revenues from the proved reserves as determined under the last reserve report and is reduced by an amount equal to all of the Partnership’s debts or (ii) an amount equal to three times the total amount of distributions paid by the Partnership to the participant during the previous twelve months. The MGP is also permitted to adjust the purchase price under certain conditions for changes occurring after the date of the presentment request. Repurchase requests are fulfilled by the MGP on a first-come, first-served basis and may not exceed 5% of the total units outstanding. The MGP may suspend the presentment feature at any time if it determines that it does not have sufficient cash flow or it is unable to borrow funds on terms it deems reasonable.
 
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NOTE 7 – PROPERTIES
 
The Partnership is engaged solely in gas activities, all of which are located in Pennsylvania. Costs capitalized for these activities are as follows:
             
   
March 31, 2015
    
December 31, 2014
  
Leasehold Costs
   $ 124,987     $ 124,987  
Asset Retirement Obligation Asset
     124,764       124,764  
Development Costs
     7,392,055       7,392,055  
Gas properties, successful efforts method
     7,641,806       7,641,806  
Less: Accumulated Depreciation, Depletion and Amortization
     1,376,805       1,210,370  
                 
Gas Properties – net
   $ 6,265,001     $ 6,431,436  
 
Twelve wells are revenue producing and two wells were not in line as of March 31, 2015.
 
NOTE 8 – ASSET RETIREMENT OBLIGATION
 
Changes in carrying amount of asset retirement obligations associated with gas properties are as follows:
       
   
March 31, 2015
Balance at beginning of period:
   $ 129,630  
Obligations assumed with development activities
     -  
Accretion expense
     851  
Balance at end of period
   $ 130,481  
 
The above accretion expense is included in depreciation, depletion and amortization in the partnership statement of operations.
 
NOTE 9 - RELATED-PARTY ACTIVITIES
 
MDS, through entities under common ownership, performed drilling, and well services for the Partnership and is paid at competitive rates for these services. First Class Energy, an entity under common ownership performed much of the drilling services on behalf of the MGP. Gathering, transportation and gas marketing is provided by Snyder Brothers, Inc. The MGP also receives a fully accountable reimbursement for actual administrative costs. At March 31, 2015, $19,200 was due to the MGP for well maintenance fees related to the revenue producing wells and this amount is included in the accrued expenses on the balance sheet.
 
NOTE 10 - COMMITMENTS AND CONTINGENCIES
 
Environmental
 
Due to the nature of the natural gas industry, the Partnership is exposed to environmental risks through the services provided to it by affiliated companies.
 
The affiliated companies have various policies and procedures to avoid environmental contamination and mitigate the risks from environmental contamination. The affiliated companies conduct periodic reviews to identify changes in their environmental risk profile. Liabilities are accrued when environmental assessments and/or clean-ups are probable and the costs can be reasonably estimated. The MGP is not aware of any environmental claims existing as of March 31, 2015. However, there can be no assurance that current regulatory requirements will not change or unknown past noncompliance with environmental laws will not be discovered on the Partnership’s properties.
 
Legal
 
Neither the Partnership nor the MGP are party to any pending legal proceeding that the MGP believes would have a materially adverse effect on the Partnership’s business, financial condition, results of operations or liquidity.
 
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED)
 
The following discussion and analysis should be read together with the Partnership’s unaudited condensed balance sheets and related notes thereto set forth in this Quarterly Report on Form 10-Q. Please also refer to the Partnership’s prospectus dated May 2, 2013 for further details regarding the matters discussed below.
 
Forward-Looking Statements
 
When used in this Form 10-Q, the words “believes”, “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. These risks and uncertainties could cause actual results to differ materially from the results stated or implied in this document. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those reflected in any forward-looking statements, as a result of a variety of risks and uncertainties, including those described under “Cautionary Statements Regarding Forward Looking Statements” and “Risk Factors” of the prospectus dated May 2, 2013.
 
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Partnership undertakes no obligation to publicly release the results of any revisions to forward-looking statements which the Partnership may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
 
Overview
 
Business of the Partnership, the Managing General Partner and Certain Relationships
 
The Partnership drilled development wells which means a well drilled within the proved area of a natural gas reservoir to the depth of a stratigraphic horizon known to be productive. Only vertical natural gas wells in the Marcellus Shale area in western Pennsylvania were drilled. The Partnership Agreement governs the rights and obligations of the partners. The investment return will depend solely on the operations and success or lack of success of the Partnership.
 
The Partnership has been formed as a limited partnership under the Delaware Revised Uniform Limited Partnership Act. As of December 31, 2013, 1,508.53 units had been sold for an aggregate price of $15,001,000.
 
The MGP of the Partnership is MDS Energy Development, LLC (“MDS”), a Pennsylvania limited liability company. The MGP’s affiliates, MDS Energy, Ltd. and M/D Gas, Inc., have sponsored and serve as MGP of nine private drilling partnerships, in the aggregate.
 
First Class Energy, LLC provided the necessary services to drill the wells on behalf of the MGP, and also served as the Partnership’s general drilling contractor and operator (“driller/operator”) supervises the drilling, completing and operating (administrative, gathering, transportation, well services) of the wells drilled by the Partnership and paid at competitive rates for these services. The gas marketing is handled by an affiliated company, Snyder Brothers, Inc. The personnel of the driller/operator’s affiliates’ (MDS Energy, Ltd. and First Class Energy LLC) manage and operate the MGP’s business. These affiliates have limited information with respect to the ultimate recoverable reserves and production decline rates of vertical wells drilled in the Marcellus Shale primary area. The MGP and its affiliates receive substantial fees and profits in connection with the Partnership’s business.
 
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Governance
 
The Partnership has no executive officers and currently does not have any directors. Because the Partnership itself does not employ any persons, the MGP has determined that the Partnership will rely on a Code of Business Conduct and Ethics adopted by the MGP that applies to the executive officers, employees and other persons performing services for the MGP.
 
Conflicts of Interest
 
Conflicts of interest are inherent in natural gas and oil partnerships involving non-industry investors because the transactions are entered into without arms’ length negotiation. The interests of the investors and those of the MGP and its affiliates may be inconsistent in some respects, and the MGP’s actions may not be the most advantageous to investors.
 
The Partnership does not directly employ any of the persons responsible for its management or operation. Rather, the personnel of the MGP manage and operate the Partnership’s business, and they will also spend a substantial amount of time managing the business and affairs of the MGP’s other affiliates, which creates a conflict regarding the allocation of their time between the Partnership’s business and affairs and the MGP’s other business interests. In this regard, the Partnership’s policies and procedures for reviewing, approving or ratifying related party transactions with the MGP are set forth in the partnership agreement.
 
Liquidity and Capital Resources
 
Natural Gas Sales
 
The Partnership currently uses the “net-back” method of accounting for arrangements related to its commodity sales. This Partnership sells commodities at the wellhead and collects a price and recognizes revenues based on the wellhead sales price as transportation costs downstream of the wellhead are incurred by the purchaser and reflected in the wellhead price.
 
As of March 31, 2015, all of the aggregate capital from our offering of the units had been expended, fourteen wells had been completed and twelve are revenue producing with two awaiting connection to gathering which are expected to be connected by September 30, 2015. As of March 31, 2015, approximately $145,000 of gross revenue from the sale of natural gas had been received for approximately 81,000 MCF of production with an average realized price of $1.79 per MCF. In addition approximately $89,000 of gross revenue from the sale of natural gas had been recorded as revenue as a result of the Partnership estimating revenue from production for which the proceeds of the sale of the natural gas had not yet been received and those amounts are recorded as accounts receivable. The average realizable price per MCF for this estimated revenue is $1.75 per MCF for estimated production of 51,000 MCF of production.
 
Natural Gas Production Costs
 
Generally, natural gas production costs vary with changes in total natural gas production volumes. In addition, general field services and all other costs vary and can fluctuate based on services required, but are expected to increase as wells age and require more extensive repair and maintenance. These costs include water hauling and disposal, equipment repairs and maintenance, snow removal, environmental compliance and remediation and service rig workovers. Production costs for the three months ended March 31, 2015 were approximately $85,000.
 
Depreciation, Depletion and Amortization
 
DD&A expense for continuing operations was approximately $166,000 for the three months ended March 31, 2015 from production of 132,000 MCFs. The DD&A expense rate per MCF is estimated at $1.26.
 
Funding of the Proposed Activities
 
The Partnership will depend on the proceeds of the offering and the MGP’s capital contribution to carry out its proposed activities. The MGP paid all of the Partnership’s organization and offering costs (excluding sales commissions) up to 8% of the Partnership’s subscription proceeds and it contributed all of the leases (but the MGP retained the other lease rights) for each well to be drilled by the Partnership.
 
The MGP believes that the Partnership’s liquidity requirements will be satisfied from the proceeds of the offering and the MGP’s capital contributions and the Partnership’s production revenues from its wells.
 
If the Partnership requires additional funds for cost overruns or additional development or remedial work after a well begins producing, then these funds may be provided by:
 
 
●
subscription proceeds, if available, which will result in the Partnership either drilling fewer wells or acquiring a lesser working interest in one or more wells;
 
 
●
borrowings from the MGP, its affiliates, or third-parties if available on terms deemed reasonable by the MGP; or
 
 
●
retaining Partnership revenues.
 
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The amount that may be borrowed by the Partnership from the MGP, its affiliates and third-parties may not at any time exceed 5% of the Partnership’s subscription proceeds and must be without recourse to the other investors. Notwithstanding, this limitation will not affect the Partnership’s ability to enter into agreements and financial instruments relating to hedging up to 50% of the Partnership’s natural gas and oil production and pledging up to 100% of the Partnership’s assets and reserves in connection therewith. The Partnership’s repayment of any borrowings would be from its production revenues and would reduce or delay any cash distributions.
 
Participation in Costs and Revenues and Distributions
 
Please refer to Note 4 – Participation in Costs and Revenues for the details of how the Partnership’s costs and revenues will be charged and credited between the MGP and the investors in the Partnership after deducting from the Partnership’s gross revenues the landowner royalties and any other lease burdens. Some of the percentages will be determined either by the actual costs incurred by the Partnership to drill and complete its wells or by the final amount of the MGP’s capital contribution to the Partnership, which will not be known until after all of the Partnership’s wells have been drilled and completed.
 
Availability of Financing to the Managing General Partner and associated entities
 
In July, 2014, certain of the wholly-owned companies of MDS Associated Companies, Inc., an affiliate of the MGP, agreed to revise their existing line of credit with PNC Bank, National Association. Under the revised terms, $3,000,000 of the existing balance on the line of credit was converted to a term note of 60 months duration with an interest rate of LIBOR plus 2.45%. As of March 31, 2015, the outstanding balance was $2,600,000. In addition, there is a line of credit for working capital in the amount of $2,000,000 that matures on July 30, 2015 with an interest rate of LIBOR plus 2.45% and a line of credit for equipment in the amount of $4,500,000 that matures July 31, 2015 with an interest rate of LIBOR plus 2.50%. As of March 31, 2015, there was no outstanding balance under the working capital line of credit and the outstanding balance under the equipment line of credit was $3,298,139 which was converted to a term note of 60 months duration with an interest rate of LIBOR plus 2.50%. All credit facilities are guaranteed by all the wholly-owned companies of the MDS Associated Companies, Inc. including the MGP. The credit facilities are secured by all of the assets of the borrowers, including the MGP’s, except fixtures used in connection with wells and the production and transportation of natural gas and oil from the wells. The obligations of the borrowers under these facilities have been guaranteed by Michael D. Snyder.
 
In addition, MDS Energy, Ltd., an affiliate of the MGP, is a borrower under two financing arrangements (unsecured line of credit and an unsecured demand note) with David E. Snyder, the father of Michael D. Snyder. As of March 31, 2015 the aggregate principal amount outstanding under these financing arrangements was $2,425,000, which may increase or decrease in the future. The unsecured line credit is for $5,000,000 and borrowings bear interest at the prime lending rate less 1.25%. The outstanding balance as of March 31, 2015 was $1,250,000 and is payable on demand. The unsecured demand note bears interest at the Federal Fund target Rate plus 1% with a 2.5% floor and the outstanding balance was $1,175,000 and is payable on demand with interest payable quarterly. The financing arrangements are subordinated to MDS Associated Companies, Inc.’s obligations to PNC Bank, National Association, under the term note and line of credit described in the preceding paragraph.
 
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Critical Accounting Policies
 
The discussion and analysis of the Partnership’s financial condition is based upon the Partnership’s condensed balance sheets, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The Partnership will base its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, and the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Partnership will evaluate its estimates on an on-going basis.
 
Actual results may differ from these estimates under different assumptions or conditions. A discussion of significant accounting policies the Partnership has adopted and followed in the preparation of its financial statements is included within “Notes to Financial Statements” in Part I, Item 1, “Financial Statements” in this quarterly report and in its Form 10-K dated March 13, 2015.
 
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ITEM 4.          CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
The MGP on behalf of the Partnership, with the participation of the MGP’s management, including the Chief Executive Officer and President and the Chief Financial Officer, evaluated the effectiveness of the Partnership’s disclosure controls and procedures as of March 31, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Partnership’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.
 
Under the supervision of the MGP’s Chief Executive Officer and President, and Chief Financial Officer, the MGP has carried out an evaluation of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the MGP’s management, including the Chief Executive Officer and President and the Chief Financial Officer concluded that, at March 31, 2015, the Partnership’s disclosure controls and procedures were effective.
 
Changes in Internal Control over Financial Reporting
 
There have been no changes in the Partnership’s internal control over financial reporting for the Partnership during the three months ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
 
As an emerging growth company, the Partnership is exempt from the requirement to obtain an attestation report from the Partnership’s independent registered public accounting firm on the assessment of the Partnership’s internal controls pursuant to the Sarbanes-Oxley Act of 2002 until 2018, or such time that the Partnership no longer qualifies as an emerging growth company in accordance with the Jumpstart Our Business Startups Act of 2012.
 
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PART II OTHER INFORMATION
 
ITEM 1.
LEGAL PROCEEDINGS
 
The MGP is not aware of any legal proceedings filed against the Partnership.
 
Affiliates of the MGP are party to various routine legal proceedings arising in the ordinary course of their collective business. The MGP’s management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the MGP’s or Partnership’s financial condition or results of operations.
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
Not applicable.
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
 
Not applicable.
 
ITEM 4.
MINE SAFETY DISCLOSURES.
 
Not applicable.
 
ITEM 5.
OTHER INFORMATION
 
None.
 
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ITEM 6.
EXHIBITS
                         
EXHIBIT INDEX
                         
       
Incorporated by Reference
    
Exhibit
No.
  
Description
  
Form
  
SEC File
Number
  
Exhibit
  
Filing
Date
  
Filed Herewith
                         
4.2
  
Certificate of Limited Partnership for MDS Energy Public 2013-A LP
  
10-Q
  
333-181993-02
  
4.2
  
6/10/2013
    
                         
31.1
  
Rule 13(a)-14(a) Certification of Principal Executive Officer.
                  
Filed herewith
                         
31.2
  
Rule 13(a)-14(a) Certification of Principal Financial Officer.
                  
Filed herewith
                         
32
  
Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
                  
Filed herewith
                         
101.INS
  
XBRL Instance document
                  
Filed herewith
                         
101.SCH
  
XBRL Taxonomy Extension Schema Document
                  
Filed herewith
                         
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
                  
Filed herewith
                         
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
                  
Filed herewith
                         
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
                  
Filed herewith
                         
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document
                  
Filed herewith
 
Incorporate all by reference into the document rather than attach
 
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SIGNATURES
 
Pursuant to the requirements of the Securities of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
     
 
MDS ENERGY PUBLIC 2013 - A LP
 
By:
MDS Energy Development, LLC, its Managing General Partner
     
Date: May 15, 2015
By:
/s/ Michael D. Snyder
   
Michael D. Snyder, Chief Executive Officer and President
 
In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
     
Date: May 15, 2015
By:
/s/ Dennis L. Hinderliter
   
Dennis L. Hinderliter, Chief Financial Officer and Treasurer
 
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MDS ENERGY PUBLIC 2013-A LP Reports