10-Q 1 s87ap01.txt P&P 87-AP 9/30/01 10-Q 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 September 30, 2001 Commission File No. 33-11193-1 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. -------------------------------------------------- (Exact name of Registrant as specified in its charter) Texas 75-2195512 -------------------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5205 N. O'Connor Blvd., Suite 1400, Irving, Texas 75039 ------------------------------------------------- ------------ (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code : (972) 444-9001 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 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 / / PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of September 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and nine months ended September 30, 2001 and 2000............... 4 Statement of Partners' Capital for the nine months ended September 30, 2001............................... 5 Statements of Cash Flows for the nine months ended September 30, 2001 and 2000............................ 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 13 Signatures............................................... 14 2 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS September 30, December 31, 2001 2000 ----------- ------------ (Unaudited) ASSETS Current assets: Cash $ 282,471 $ 182,206 Accounts receivable - oil and gas sales 152,062 296,053 ---------- ---------- Total current assets 434,533 478,259 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,421,875 5,701,037 Accumulated depletion (4,812,976) (5,019,550) ---------- ---------- Net oil and gas properties 608,899 681,487 ---------- ---------- $ 1,043,432 $ 1,159,746 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 50,506 $ 37,242 Partners' capital: Managing general partner 11,171 12,466 Limited partners (24,426 interests) 981,755 1,110,038 ---------- ---------- 992,926 1,122,504 ---------- ---------- $ 1,043,432 $ 1,159,746 ========== ==========

The financial information included as of September 30, 2001 has been prepared by the managing general partner without audit by independent public accountants. The accompanying notes are an integral part of these financial statements. 3 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited) Three months ended Nine months ended September 30, September 30, ---------------------- ------------------------ 2001 2000 2001 2000 --------- --------- ---------- ---------- Revenues: Oil and gas $ 245,446 $ 425,268 $ 953,451 $1,121,194 Interest 2,025 4,409 8,672 11,558 Gain (loss) on disposition of assets 15,138 (1,034) 54,375 23,311 -------- -------- --------- --------- 262,609 428,643 1,016,498 1,156,063 -------- -------- --------- --------- Costs and expenses: Oil and gas production 163,515 232,421 497,344 592,352 General and administrative 4,632 12,758 28,607 33,636 Impairment of oil and gas properties 28,862 - 28,862 - Depletion 13,851 19,469 43,732 52,686 Abandoned property 15,229 4,038 32,692 17,107 -------- -------- --------- --------- 226,089 268,686 631,237 695,781 -------- -------- --------- --------- Net income $ 36,520 $ 159,957 $ 385,261 $ 460,282 ======== ======== ========= ========= Allocation of net income: Managing general partner $ 366 $ 1,600 $ 3,853 $ 4,603 ======== ======== ========= ========= Limited partners $ 36,154 $ 158,357 $ 381,408 $ 455,679 ======== ======== ========= ========= Net income per limited partnership interest $ 1.48 $ 6.49 $ 15.61 $ 18.66 ======== ======== ========= =========

The financial information included herein has been prepared by the managing general partner without audit by independent public accountants. The accompanying notes are an integral part of these financial statements. 6 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Producing Properties 87-A, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the State of Texas. The Partnership engages in oil and gas development and production in Texas and is not involved in any industry segment other than oil and gas. Note 2. Basis of presentation In the opinion of management, the unaudited financial statements of the Partnership as of September 30, 2001 and for the three and nine months ended September 30, 2001 and 2000 include all adjustments and accruals consisting only of normal recurring accrual adjustments which are necessary for a fair presentation of the results for the interim period. These interim results are not necessarily indicative of results for a full year. Certain reclassifications may have been made to the September 30, 2000 financial statements to conform to the September 30, 2001 financial statement presentations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's Report on Form 10-K for the year ended December 31, 2000, as filed with the Securities and Exchange Commission, a copy of which is available upon request by writing to Rich Dealy, Vice President and Chief Accounting Officer, 5205 North O'Connor Boulevard, Suite 1400, Irving, Texas 75039-3746. Note 3. Impairment of long-lived assets In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Partnership reviews its proved oil and gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of the carrying value of the Partnership's oil and gas properties. The Partnership has estimated the expected future cash flows of its oil and gas properties as of September 30, 2001, based on proved reserves, and compared such estimated future cash flows to the respective carrying amount of the oil and gas properties to determine if the carrying amounts were likely to be recoverable. For those proved oil and gas properties for which the carrying amount exceeded the estimated future cash flows, an impairment was determined to exist; therefore, the Partnership adjusted the carrying amount of those oil and 7 gas properties to their fair value as determined by discounting their expected future cash flows at a discount rate commensurate with the risks involved in the industry. As a result, the Partnership recognized a non-cash impairment provision of $28,862 related to its proved oil and gas properties during the nine months ended September 30, 2001. Note 4. Proposal to acquire Partnership On October 22, 2001, Pioneer Natural Resources Company ("Pioneer") mailed materials to the limited partners of the Partnership soliciting their approval of an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and the Partnership. Pioneer has valued the Partnership interest at $2,624,622 of which $2,589,227 is attributable to the limited partners, excluding Pioneer USA in its capacity as a general partner or a limited partner. If a majority of the limited partners approve the transaction, each limited partner will receive their proportionate share of the value in the form of Pioneer common stock. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Nine months ended September 30, 2001 compared with nine months ended September 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 15% to $953,451 for the nine months ended September 30, 2001 as compared to $1,121,194 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and natural gas liquids ("NGLs") and a decline in production, offset by higher average prices received for gas. For the nine months ended September 30, 2001, 28,916 barrels of oil, 5,946 barrels of NGLs and 32,901 mcf of gas were sold, or 40,346 barrel of oil equivalents ("BOEs"). For the nine months ended September 30, 2000, 33,684 barrels of oil, 7,631 barrels of NGLs and 34,418 mcf of gas were sold, or 47,051 BOEs. Of the decrease, 2,155 BOEs are attributable to the fact that on July 1, 2001, the Partnership's revenue and operating expense allocation reverted to 80.808081% from 95.959595% pursuant to the Program agreement governing the Partnership which provides for a reversionary interest of 80.808081% once cumulative distributions equal initial partners' capital ("Reversionary Interest"). Due to the decline characteristics of the Partnership's oil and gas properties, management expects a certain amount of decline in production in the future until the Partnership's economically recoverable reserves are fully depleted. The average price received per barrel of oil decreased $1.48, or 5%, from $28.33 for the nine months ended September 30, 2000 to $26.85 for the same period in 2001. The average price received per barrel of NGLs decreased $.90, or 8%, from $11.64 during the nine months ended September 30, 2000 to $10.74 for the same period in 2001. The average price received per mcf of gas increased 52% from $2.27 during the nine months ended September 30, 2000 to $3.44 for the same period in 2001. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 8 continue in the foreseeable future. The Partnership may therefore sell its future oil and gas production at average prices lower or higher than that received during the nine months ended September 30, 2001. Gains on disposition of assets of $54,375 and $23,311 were recognized during the nine months ended September 30, 2001 and 2000, respectively. The gain recognized during the period ended September 30, 2001 was due to $45,790 from salvage income on two wells plugged and abandoned in the current period and $8,585 was primarily due to equipment credits received on fully depleted wells. The gain recognized during the period ended September 30, 2000 was comprised of $10,858 from equipment credits on one well plugged and abandoned in the current period and $17,081 salvage income primarily from wells plugged and abandoned during 1999, offset by a $4,628 loss on the abandonment of two additional wells plugged in the current period. Expenses incurred during the nine months ended September 30, 2001 and 2000 to plug and abandon these wells were $32,692 and $17,107, respectively. Costs and Expenses: Total costs and expenses decreased to $631,237 for the nine months ended September 30, 2001 as compared to $695,781 for the same period in 2000, a decrease of $64,544, or 9%. This decrease was the result of lower production costs, depletion and general and administrative expenses ("G&A"), offset by increases in the impairment of oil and gas properties and abandoned property costs. Production costs were $497,344 for the nine months ended September 30, 2001 and $592,352 for the same period in 2000, resulting in a $95,008 decrease, or 16%. The decrease was primarily due to lower workover expenses and well maintenance costs and a 5% decline in lease operating costs and production taxes attributable to the Revisionary Interest change, offset by higher ad valorem taxes. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 15%, from $33,636 for the nine months ended September 30, 2000 to $28,607 for the same period in 2001, primarily due to a lower percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of decreased oil and gas revenues and the Revisionary Interest change as noted above. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Partnership reviews its proved oil and gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of the carrying value of the Partnership's oil and gas properties. The Partnership has estimated the expected future cash flows of its oil and gas properties as of September 30, 2001, based on proved reserves, and compared such estimated future cash flows to the respective carrying amount of the oil and gas properties to determine if the carrying amounts were likely to be recoverable. For those proved oil and gas properties for which the carrying amount exceeded the estimated future cash flows, an impairment was determined to exist; therefore, the Partnership adjusted the carrying amount of those oil and gas properties to their fair value as determined by discounting their expected future cash flows at a discount rate commensurate with the risks involved in the 9 industry. As a result, the Partnership recognized a non-cash impairment provision of $28,862 related to its proved oil and gas properties during the nine months ended September 30, 2001. Depletion was $43,732 for the nine months ended September 30, 2001 as compared to $52,686 for the same period in 2000, representing a decrease of $8,954, or 17%. This decrease was the result of a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 2000 and a decline in oil production of 4,768 barrels for the nine months ended September 30, 2001 as compared to the same period in 2000. Three months ended September 30, 2001 compared with three months ended September 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 42% to $245,446 for the three months ended September 30, 2001 as compared to $425,268 for the same period in 2000. The decrease in revenues resulted from lower average prices received and a decline in production. For the three months ended September 30, 2001, 8,076 barrels of oil, 2,201 barrels of NGLs and 8,443 mcf of gas were sold, or 11,684 BOEs. For the three months ended September 30, 2000, 11,999 barrels of oil, 2,647 barrels of NGLs and 11,524 mcf of gas were sold, or 16,567 BOEs. Of the decrease, 2,154 BOEs were attributable to the Reversionary Interest change occurring. Due to the decline characteristics of the Partnership's oil and gas properties, management expects a certain amount of decline in production in the future until the Partnership's economically recoverable reserves are fully depleted. The average price received per barrel of oil decreased $4.01, or 13%, from $30.14 for the three months ended September 30, 2000 to $26.13 for the same period in 2001. The average price received per barrel of NGLs decreased $3.17, or 26%, from $12.05 during the three months ended September 30, 2000 to $8.88 for the same period in 2001. The average price received per mcf of gas decreased 36% from $2.75 during the three months ended September 30, 2000 to $1.77 for the same period in 2001. Gain on disposition of assets of $15,138 recognized during the three months ended September 30, 2001 consisted of $11,280 from salvage income received on two wells plugged and abandoned during the current period and $3,858 from equipment credits on fully depleted wells. Loss on disposition of assets of $1,034 recognized during the three months ended September 30, 2000 resulted primarily from the loss on the abandonment of two wells plugged during the current period. Expenses incurred during the three months ended September 30, 2001 and 2000 to plug and abandon these wells were $15,229 and $4,038, respectively. Costs and Expenses: Total costs and expenses decreased to $226,089 for the three months ended September 30, 2001 as compared to $268,686 for the same period in 2000, a decrease of $42,597, or 16%. This decrease was the result of lower production costs, G&A and depletion, offset by increases in the impairment of oil and gas properties and abandoned property costs. 10 Production costs were $163,515 for the three months ended September 30, 2001 and $232,421 for the same period in 2000, resulting in a $68,906 decrease, or 30%. The decrease was primarily due to lower workover expenses and well maintenance costs and a 14% decline in lease operating costs and production taxes attributable to the Reversionary Interest change, offset by higher ad valorem taxes. During this period, G&A decreased 64% from $12,758 for the three months ended September 30, 2000 to $4,632 for the same period in 2001, primarily due to a lower percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of decreased oil and gas revenues. The Partnership recognized a non-cash impairment provision of $28,862 related to its proved oil and gas properties during the three months ended September 30, 2001. Depletion was $13,851 for the three months ended September 30, 2001 as compared to $19,469 for the same period in 2000, representing a decrease of $5,618, or 29%. This decrease was attributable to a decline in oil production of 3,923 barrels for the three months ended September 30, 2001 as compared to the same period in 2000. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $156,861 during the nine months ended September 30, 2001 from the same period ended September 30, 2000. The increase was attributable to decreases in production costs of $95,008, G&A expenses of $5,029 and working capital of $243,038, offset by a decrease in oil and gas sales receipts of $170,629 and an increase in abandoned property costs of $15,585. The decrease in oil and gas receipts resulted from lower oil and NGL prices during 2001 of $56,571 and a $151,359 decline in production and Reversionary Interest change during 2001 as compared to the same period in 2000, offset by an increase of $37,301 resulting from higher gas prices received. The decrease in production costs was primarily due to lower workover expenses and well maintenance costs and the Reversionary Interest change, offset by higher ad valorem taxes. The decrease in G&A was primarily due to a lower percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of decreased oil and gas revenues and the Reversionary Interest change. Net Cash Provided by Investing Activities The Partnership's investing activities during the nine months ended September 30, 2001 and 2000 were related to upgrades of oil and gas equipment on active properties. Proceeds from disposition of assets of $57,906 and $43,366 were received during the nine months ended September 30, 2001 and 2000, respectively. The proceeds recognized during the period in 2001 were comprised of $45,790 from salvage income on two wells plugged and abandoned in the current period and $12,116 from equipment credits received on active wells. The proceeds recognized during the period in 2000 were primarily from equipment credits on wells plugged and abandoned during 2000 and 1999. 11 Net Cash Used in Financing Activities For the nine months ended September 30, 2001, cash distributions to the partners were $514,839, of which $5,148 was distributed to the managing general partner and $509,691 to the limited partners. For the same period ended September 30, 2000, cash distributions to the partners were $450,855, of which $4,509 was distributed to the managing general partner and $446,346 to the limited partners. During 2001, the Partnership made distributions in March and July but no distributions were made by the Partnership during September pending the vote of the proposed merger of the Partnership into Pioneer Natural Resources USA, Inc. ("Pioneer USA"). For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On October 22, 2001, Pioneer Natural Resources Company ("Pioneer") mailed definitive materials (the "proxy statement/prospectus") to solicit the approval of limited partners of 46 Parker & Parsley limited partnerships, including the Partnership, of an agreement and plan of merger among Pioneer, Pioneer USA, a wholly-owned subsidiary of Pioneer, and those limited partnerships. The special meetings of the limited partners to consider and vote on the merger proposal are scheduled for December 20, 2001. The record date to identify the limited partners who are entitled to notice of and to vote at the special meetings was September 21, 2001. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA. As a result, the partnership interests of those partnerships will be converted into the right to receive Pioneer common stock. The proxy statement/prospectus is non-binding and is subject to, among other things, consideration of offers from third parties to purchase any partnership or its assets and the majority approval of the limited partnership interests in each partnership. A copy of the proxy statement/prospectus may be obtained without charge upon request from Pioneer Natural Resources Company, 5205 North O'Connor Blvd., Suite 1400, Irving, Texas 75039, Attention: Investor Relations. The limited partners are urged to read the proxy statement/prospectus of Pioneer filed with the Securities and Exchange Commission because it contains important information about the proposed mergers, including information about the direct and indirect interests of Pioneer USA and Pioneer in the mergers. The limited partners may also obtain the final proxy statement/prospectus and other relevant documents relating to the proposed mergers free through the internet web site that the Securities and Exchange Commission maintains at www.sec.gov. --------------- (1) "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward looking statements that involve risks and uncertainties. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward looking statements. 12 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K - none 13 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: November 9, 2001 By: /s/ Rich Dealy --------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 14

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