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 March 31, 2017

 

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 333-113340

 

MEWBOURNE ENERGY PARTNERS 04-A, L.P.

 

Delaware		20-0718858
(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, a smaller reporting company, or an emerging growth 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  ☒
	Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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 04-A, L.P.
INDEX

 

Part 1  -  Financial Information				Page No.
	Item 1.  Financial Statements
		Condensed Balance Sheets -
			March 31, 2017 (Unaudited) and December 31, 2016	3
		Condensed Statements of Operations (Unaudited) -
			For the three months ended March 31, 2017 and 2016	4
		Condensed Statement of Changes In Partners’ Capital (Unaudited) -
			For the three months ended March 31, 2017	5
		Condensed Statements of Cash Flows (Unaudited) -
			For the three months ended March 31, 2017 and 2016	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			11
	Item 4.  Disclosure Controls and Procedures			11
Part II  -  Other Information
	Item 1.  Legal Proceedings			12
	Item 6.  Exhibits and Reports on Form 8-K			12

 

 

MEWBOURNE ENERGY PARTNERS 04-A, L.P.
Part I - Financial Information
Item 1.  Financial Statements
CONDENSED BALANCE SHEETS

 

		March 31, 2017				December 31, 2016
		(Unaudited)
ASSETS
Cash		$	13,252			$	12,266
Accounts receivable, affiliate			108,587				149,300
Prepaid state taxes			2,281				1,711
Total current assets			124,120				163,277
Oil and gas properties at cost, full-cost method			30,507,504				30,507,068
Less accumulated depreciation, depletion, amortization
and cost ceiling write-downs			(28,822,919	)			(28,801,226	)
			1,684,585				1,705,842
Total assets		$	1,808,705			$	1,869,119
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable, affiliate		$	51,052			$	37,188
Total current liabilities			51,052				37,188
Asset retirement obligation			578,961				572,433
Partners' capital			1,178,692				1,259,498
Total liabilities and partners’ capital		$	1,808,705			$	1,869,119

 

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

 

 

MEWBOURNE ENERGY PARTNERS 04-A, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

 

		For the
		Three Months Ended
		March 31,
		2017				2016
Revenues:
Oil sales		$	38,140			$	16,001
Gas sales			153,139				82,570
Total revenues			191,279				98,571
Expenses:
Lease operating expense			67,621				107,944
Production taxes			13,567				6,223
Administrative and general expense			18,101				13,406
Depreciation, depletion, and amortization			21,693				29,763
Cost ceiling write-down			—				27,212
Asset retirement obligation accretion			6,528				6,046
Total expenses			127,510				190,594
Net income (loss)		$	63,769			$	(92,023	)

 

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

 

 

MEWBOURNE ENERGY PARTNERS 04-A, L.P.
CONDENSED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
For the three months ended March 31, 2017
(Unaudited)

 

		Partners’ Capital
Balance at December 31, 2016		$	1,259,498
Cash distributions			(144,575	)
Net income			63,769
Balance at March 31, 2017		$	1,178,692

 

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

 

 

MEWBOURNE ENERGY PARTNERS 04-A, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

 

		Three Months Ended
		March 31,
		2017				2016
Cash flows from operating activities:
Net income (loss)		$	63,769			$	(92,023	)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, depletion, and amortization			21,693				29,763
Cost ceiling write-down			—				27,212
Asset retirement obligation accretion			6,528				6,046
Changes in operating assets and liabilities:
Accounts receivable, affiliate			40,713				24,710
Prepaid state taxes			(570	)			(2,336	)
Accounts payable, affiliate			13,864				(2,120	)
Net cash provided by (used in) operating activities			145,997				(8,748	)
Cash flows from investing activities:
Proceeds from sale of oil and gas properties			17				—
Purchase and development of oil and gas properties			(453	)			(1,569	)
Net cash used in investing activities			(436	)			(1,569	)
Cash flows from financing activities:
Cash distributions to partners			(144,575	)			(2,788	)
Net cash used in financing activities			(144,575	)			(2,788	)
Net increase (decrease) in cash			986				(13,105	)
Cash, beginning of period			12,266				21,164
Cash, end of period		$	13,252			$	8,059

 

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

 

MEWBOURNE ENERGY PARTNERS 04-A, L.P.

  

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Description of Business

Mewbourne Energy Partners 04-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 January 27, 2004. The offering of limited and general partnership interests began June 10, 2004 as a part of an offering registered under the name Mewbourne Energy Partners 04-05 Drilling Program, (the "Program"), and concluded August 20, 2004, with total investor contributions of $30,000,000 originally being sold to 1,118 subscribers of which $27,235,000 were sold to 1,022 subscribers as general partner interests and $2,765,000 were sold to 96 subscribers as limited partner interests. During 2006, 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 2016, 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. In preparing these financial statements, the Partnership has evaluated subsequent events for potential recognition and disclosure through the date the financial statements were issued.

 

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 March 31, 2017 and 2016, 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 was a cost ceiling write-down of $27,212 for the three months ended March 31, 2016. There was no cost ceiling write-down for the three months ended March 31, 2017.

 

 

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 three months ended March 31, 2017 and the year ended December 31, 2016 is as follows:

 

		2017				2016
Balance, beginning of period		$	572,433			$	545,723
Liabilities incurred			—				7,204
Liabilities reduced due to settlements			—				(4,730	)
Accretion expense			6,528				24,236
Balance, end of period		$	578,961			$	572,433

 

5.

Related Party Transactions

In accordance with the laws of the State of Delaware, MD 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		70%		30%
	All other revenues		70%		30%
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		70%		30%

 

(1)

As noted above, pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which should approximate 20% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 20% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program's total capital costs reaches approximately 20%. 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 04-A, L.P. was formed January 27, 2004. The offering of limited and general partnership interests began June 10, 2004 and concluded August 20, 2004, with total investor contributions of $30,000,000. During 2006, 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 $73,068 at March 31, 2017.

 

During the three months ended March 31, 2017, the Partnership made cash distributions to the investor partners (including state tax payments for the benefit of investor partners) in the amount of $144,575 as compared to $2,788 for the three months ended March 31, 2016. Since inception, the Partnership has made distributions of $41,043,377, 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 March 31, 2017 as compared to the three months ended March 31, 2016:

 

		Three Months Ended March 31,
		2017				2016
Oil sales		$	38,140			$	16,001
Barrels produced			787				566
Average price/bbl		$	48.46			$	28.27
Gas sales		$	153,139			$	82,570
Mcf produced			59,952				53,494
Average price/mcf		$	2.55			$	1.54

 

Oil and gas revenues. As shown in the above table, total oil and gas sales increased by $92,708, a 94.1% rise, for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.

 

Of this increase, $11,429 and $54,073 were due to inclines in the average prices of oil and gas sold, respectively. The average price rose to $48.46 from $28.27 per barrel (bbl) and to $2.55 from $1.54 per thousand cubic feet (mcf) for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.

 

Additionally contributing to this increase were increases of $10,710 and $16,496 from inclines in the volumes of oil and gas sold by 221 bbls and 6,458 mcf.

 

Lease operations. Lease operating expense during the three month period ended March 31, 2017 decreased to $67,621 from $107,944 for the three month period ended March 31, 2016 due to fewer well repairs and workovers and lower pumping expenses and overhead.

 

Production taxes. Production taxes during the three month period ended March 31, 2017 increased to $13,567 from $6,223 for the three month period ended March 31, 2016. This was due to higher overall oil and gas revenue for the three month period ended March 31, 2017.

 

Administrative and general expense. Administrative and general expense for the three month period ended March 31, 2017 rose to $18,101 from $13,406 for the three month period ended March 31, 2016 due to increased administrative expenses allocable to the Partnership and higher reporting and legal costs.

 

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the three months ended March 31, 2017 decreased to $21,693 from $29,763 for the three months ended March 31, 2016 due to the prior period cost ceiling write-downs that reduced the balance of the full cost pool subject to amortization.

 

Cost ceiling write-down. There was a cost ceiling write-down of $27,212 for the three months ended March 31, 2016. This was due to lower average oil and gas prices for the twelve months preceding the write-down. There was no cost ceiling write-down for the three months ended March 31, 2017.

 

 

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 three months ended March 31, 2017, a 10% change in the price received for oil and gas production would have had an approximate $19,000 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, 2016 annual report on internal control over financial reporting, and for the quarter ended March 31, 2017, 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 March 31, 2017 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 04-A, L.P.
	By:	Mewbourne Development Corporation
		Managing General Partner

Date: May 15, 2017

 

	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 March 31, 2017 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.