UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2016

 

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. 000-54370

 

MEWBOURNE ENERGY PARTNERS 10-A, L.P.

 

Delaware		27-1903816
(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  ☒    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  ☒    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	☒

  

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐    No  ☒

 

 

MEWBOURNE ENERGY PARTNERS 10-A, L.P.

 

INDEX

  

Part 1 - Financial Information			Page No.
	Item 1.   Financial Statements
		Condensed Balance Sheets -      June 30, 2016 (Unaudited) and December 31, 2015	3
		Condensed Statements of Operations (Unaudited) –      For the three months ended June 30, 2016 and 2015           and the six months ended June 30, 2016 and 2015	4
		Condensed Statement of Changes In Partners’ Capital (Unaudited) -      For the six months ended June 30, 2016	5
		Condensed Statements of Cash Flows (Unaudited) –      For the six months ended June 30, 2016 and 2015	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 10-A, L.P.

 

Part I - Financial Information

 

Item 1.

Financial Statements

 

CONDENSED BALANCE SHEETS

 

		June 30, 2016				December 31, 2015
		(Unaudited)
ASSETS
Cash		$	423			$	22,038
Accounts receivable, affiliate			416,575				345,686
Prepaid state taxes			50,141				36,327
Total current assets			467,139				404,051
Oil and gas properties at cost, full-cost method			69,454,271				69,445,572
Less accumulated depreciation, depletion, amortization and cost ceiling write-downs			(63,660,211	)			(61,752,946	)
			5,794,060				7,692,626
Total assets		$	6,261,199			$	8,096,677
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable, affiliate		$	130,251			$	118,732
Total current liabilities			130,251				118,732
Asset retirement obligation			817,326				799,280
Partners’ capital			5,313,622				7,178,665
Total liabilities and partners’ capital		$	6,261,199			$	8,096,677

 

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

 

 

 MEWBOURNE ENERGY PARTNERS 10-A, L.P.

 

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2016				2015				2016				2015
Revenues:
Oil sales		$	355,594			$	464,578			$	605,751			$	906,342
Gas sales			234,952				289,890				412,035				619,792
Total revenues			590,546				754,468				1,017,786				1,526,134
Expenses:
Lease operating expense			209,326				231,775				531,092				542,927
Production taxes			35,707				29,757				59,082				65,199
Administrative and general expense			54,779				64,742				90,224				124,307
Depreciation, depletion, and amortization			133,211				379,444				289,694				798,465
Cost ceiling write-down			353,973				4,954,931				1,617,571				9,081,259
Asset retirement obligation accretion			8,525				8,142				17,014				16,284
Total expenses			795,521				5,668,791				2,604,677				10,628,441
Net loss		$	(204,975	)		$	(4,914,323	)		$	(1,586,891	)		$	(9,102,307	)

 

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

 

 

MEWBOURNE ENERGY PARTNERS 10-A, L.P.

 

CONDENSED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

For the six months ended June 30, 2016

(Unaudited)

 

		Total
Balance at December 31, 2015		$	7,178,665
Cash distributions			(278,152	)
Net loss			(1,586,891	)
Balance at June 30, 2016		$	5,313,622

 

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

 

 

MEWBOURNE ENERGY PARTNERS 10-A, L.P.

 

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six Months Ended June 30,
		2016				2015
Cash flows from operating activities:
Net loss		$	(1,586,891	)		$	(9,102,307	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion, and amortization			289,694				798,465
Cost ceiling write-down			1,617,571				9,081,259
Asset retirement obligation accretion			17,014				16,284
Plugging and abandonment cost paid from asset retirement obligation			—				(15,527	)
Changes in operating assets and liabilities:
Accounts receivable, affiliate			(70,889	)			345,716
Prepaid state taxes			(13,814	)			(27,195	)
Accounts payable, affiliate			11,519				(56,331	)
Net cash provided by operating activities			264,204				1,040,364
Cash flows from investing activities:
Proceeds from sale of oil and gas properties			4				8,661
Purchase and development of oil and gas properties			(7,671	)			—
Net cash (used in) provided by investing activities			(7,667	)			8,661
Cash flows from financing activities:
Cash distributions to partners			(278,152	)			(1,048,055	)
Net cash used in financing activities			(278,152	)			(1,048,055	)
Net (decrease) increase in cash			(21,615	)			970
Cash, beginning of period			22,038				3,843
Cash, end of period		$	423			$	4,813
Supplemental Cash Flow Information:
Change to net oil & gas properties related to asset retirement obligation liabilities		$	1,032			$	5,399
Change to property, plant and equipment related to accrual of leaseholds		$	—			$	11,222

 

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

 

  

MEWBOURNE ENERGY PARTNERS 10-A, L.P.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Description of Business

 

Mewbourne Energy Partners 10-A, L.P., (the “Registrant” or the “Partnership”), a Delaware limited partnership engaged primarily in oil and gas development and production in Texas, Oklahoma, and New Mexico, was organized on February 9, 2010. The offering of limited and general partner interests began May 1, 2010 as a part of a private placement pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder, and concluded August 2, 2010, with total investor contributions of $73,000,000 originally being sold to accredited investors of which $67,820,000 were sold to accredited investors as general partner interests and $5,180,000 were sold to accredited investors as limited partner interests. During 2012, 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 2015, 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 June 30, 2016 and 2015, 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 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 estimated future net cash flows of proved reserves, computed using the 12-month unweighted average of first-day-of-the-month oil and natural gas prices, discounted at 10%, and the lower of cost or fair value of unproved properties. If unamortized costs capitalized exceed the ceiling, the excess is charged to expense in the period the excess occurs. There were cost ceiling write-downs totaling $1,617,571 and $9,081,259 for the six months ended June 30, 2016 and 2015, respectively.

 

 

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 six months ended June 30, 2016 and the year ended December 31, 2015 is as follows:

 

		2016				2015
Balance, beginning of period		$	799,280			$	775,569
Liabilities incurred			1,046				4,984
Liabilities reduced due to settlements and plugging and abandonments			(14	)			(13,853	)
Accretion expense			17,014				32,580
Balance, end of period		$	817,326			$	799,280

 

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 (1)
Revenues:
Proceeds from disposition of depreciable and depletable properties			75	%			25	%
All other revenues			75	%			25	%
Costs and expenses:
Organization and offering costs (1)			0	%			100	%
Lease acquisition costs (1)			0	%			100	%
Tangible and intangible drilling costs (1)			100	%			0	%
Reporting and legal expenses			100	%			0	%
Operating costs, general and administrative expenses (except for reporting and legal expenses) and all other costs			75	%			25	%

 

(1)

As noted above, pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which should approximate 15% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 15% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 15%. 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 10-A, L.P. (“the Partnership”) was formed February 9, 2010. The offering of limited and general partnership interests began May 1, 2010 and concluded August 2, 2010, with total investor contributions of $73,000,000. During 2012, 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 $336,888 at June 30, 2016.

 

The Partnership had reduced cash flows from operations for the six months ended June 30, 2016 due to the steep decline in oil and gas prices during the previous twelve months. Considering these reduced operating cashflows, the Partnership anticipates smaller distributions until prices improve.

 

During the six months ended June 30, 2016, the Partnership made cash distributions to the investor partners in the amount of $278,152 as compared to $1,048,055 for the six months ended June 30, 2015. Since inception, the Partnership has made distributions of $64,810,846, 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 June 30, 2016 as compared to the three months ended June 30, 2015:

 

		Three Months Ended June 30,
		2016				2015
Oil sales		$	355,594			$	464,578
Barrels produced			8,941				9,140
Average price/bbl		$	39.77			$	50.83
Gas sales		$	234,952			$	289,890
Mcf produced			93,034				102,132
Average price/mcf		$	2.53			$	2.84

 

Oil and gas revenues. As shown in the above table, total oil and gas sales decreased by $163,922, a 21.7% decline, for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015.

 

Of this decline, $101,070 and $31,962 were due to decreases in the average prices of oil and gas sold, respectively. The average price fell to $39.77 from $50.83 per barrel (bbl) and to $2.53 from $2.84 per thousand cubic feet (mcf) for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015.

 

Also contributing to the decline in sales were $7,914 and $22,976 due to lower volumes of oil and gas sold, respectively, by 199 bbls and 9,098 mcf.

 

Lease operations. Lease operating expense during the three month period ended June 30, 2016 decreased to $209,326 from $231,775 for the three month period ended June 30, 2015 due to more well repairs and workovers.

 

Production taxes. Production taxes during the three month period ended June 30, 2016 increased to $35,707 from $29,757 for the three month period ended June 30, 2015 due to prior year production tax credits.

 

Administrative and general expense. Administrative and general expense for the three month period ended June 30, 2016 fell to $54,779 from $64,742 for the three month period ended June 30, 2015 due to decreased administrative expenses allocable to the Partnership.

 

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the three month period ended June 30, 2016 decreased to $133,211 from $379,444 for the three month period ended June 30, 2015. This was due to the overall decrease in oil and gas production.

 

Cost ceiling write-down. There were cost ceiling write-downs of $353,973 and $4,954,931 for the three months ended June 30, 2016 and 2015, respectively. These were due to lower average oil and gas prices for the twelve months preceding each write-down.

 

  

Results of Operations

 

For the six months ended June 30, 2016 as compared to the six months ended June 30, 2015:

 

		Six Months Ended June 30,
		2016				2015
Oil sales		$	605,751			$	906,342
Barrels produced			17,716				19,062
Average price/bbl		$	34.19			$	47.55
Gas sales		$	412,035			$	619,792
Mcf produced			178,243				204,117
Average price/mcf		$	2.31			$	3.04

 

Oil and gas revenues. As shown in the above table, total oil and gas sales decreased by $508,348, a 33.3% decline, for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

 

Of this decline, $254,568 and $147,945 were due to decreases in the average prices of oil and gas sold, respectively. The average price fell to $34.19 from $47.55 per barrel (bbl) and to $2.31 from $3.04 per thousand cubic feet (mcf) for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

 

Also contributing to the decline in sales were $46,023 and $59,812 due to lower volumes of oil and gas sold, respectively, by 1,346 bbls and 25,874 mcf.

 

Lease operations. Lease operating expense during the six month period ended June 30, 2016 decreased to $531,092 from $542,927 for the six month period ended June 30, 2015 due to fewer well repairs and workovers.

 

Production taxes. Production taxes during the six month period ended June 30, 2016 decreased to $59,082 from $65,199 for the six month period ended June 30, 2015 due to lower overall oil and gas revenue.

 

Administrative and general expense. Administrative and general expense for the six month period ended June 30, 2016 fell to $90,224 from $124,307 for the six month period ended June 30, 2015 due to decreased administrative expenses allocable to the Partnership.

 

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the six month period ended June 30, 2016 decreased to $289,694 from $798,465 for the six month period ended June 30, 2015. This was due to the overall decrease in oil and gas production.

 

Cost ceiling write-down. There were cost ceiling write-downs totaling $1,617,571 and $9,081,259 for the six months ended June 30, 2016 and 2015, respectively. These were due to lower average oil and gas prices for the twelve months preceding each write-down.

 

 

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 six months ended June 30, 2016, a 10% change in the price received for oil and gas production would have had an approximate $102,000 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, 2015 annual report on internal control over financial reporting, and for the quarter ended June 30, 2016, 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 June 30, 2016 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statement of Changes in Partners’ Capital, (iv) the Condensed Statements of Cash Flows, 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 10-A, L.P.
	By:	Mewbourne Development Corporation
		Managing General Partner
Date: August 15, 2016
	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 June 30, 2016 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statement of Changes in Partners’ Capital, (iv) the Condensed Statements of Cash Flows, and (v) related notes.

 

15