0000950134-01-506540.txt : 20011009 0000950134-01-506540.hdr.sgml : 20011009 ACCESSION NUMBER: 0000950134-01-506540 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20010921 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER NATURAL RESOURCES CO CENTRAL INDEX KEY: 0001038357 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752702753 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-59094 FILM NUMBER: 1742421 BUSINESS ADDRESS: STREET 1: 1400 WILLIAMS SQUARE WEST STREET 2: 5205 N OCONNOR BLVD CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 9724449001 MAIL ADDRESS: STREET 1: 1400 WILLIAMS SQUARE WEST STREET 2: 5205 N OCONNOR BLVD CITY: IRVING STATE: TX ZIP: 75039 S-4/A 1 d85998a3s-4a.txt AMENDMENT NO. 3 TO FORM S-4 1 As filed with the Securities and Exchange Commission on September 21, 2001. Registration No. 333-59094 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- AMENDMENT NO. 3 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- PIONEER NATURAL RESOURCES COMPANY (Exact Name of Registrant as Specified in its Charter) DELAWARE 1311 75-2702753 (State or Other Jurisdiction of (Primary standard industrial (I.R.S. Employer Incorporation or Organization) classification code number) Identification No.)
5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 (972) 444-9001 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------------- SCOTT D. SHEFFIELD PIONEER NATURAL RESOURCES COMPANY 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 (972) 444-9001 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- Copies to: ROBERT L. KIMBALL BRIAN M. LIDJI VINSON & ELKINS L.L.P. SAYLES, LIDJI & WERBNER 3700 TRAMMELL CROW CENTER A PROFESSIONAL CORPORATION 2001 ROSS AVENUE 4400 RENAISSANCE TOWER DALLAS, TEXAS 75201 1201 ELM STREET (214) 220-7700 DALLAS, TEXAS 75270 (214) 939-8700
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement which relates to the merger of limited partnerships with and into Pioneer Natural Resources USA, Inc. pursuant to the merger agreement described in the enclosed proxy statement/prospectus. --------------------- If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------------- CALCULATION OF REGISTRATION FEE ----------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) FEE(2) ----------------------------------------------------------------------------------------------------------------------------- Common stock, $0.01 par value(3)......... 7,647,323 $7.99 $61,100,000 $15,275 ----------------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------------
(1) Based upon the registrant's estimate of the maximum number of shares that might be issued in connection with the proposed merger transaction. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f), based on the book value of the unaffiliated partnership interests to be cancelled in the transaction, computed as of the latest practicable date. A filing fee of $20,500 was paid pursuant to the filing on April 17, 2001, by the registrant and Pioneer Natural Resources USA, Inc. of a preliminary Schedule 13e-3. Pursuant to Rule 240.0-11(a)(2) of the Securities Exchange Act of 1934, this amount has been credited against the amount that would otherwise be payable in connection with this filing, resulting in no additional payment herewith. (3) Includes associated rights to purchase shares of Series A Junior Participating Preferred Stock. Until the occurrence of certain prescribed events, none of which has occurred, the rights are not exercisable, are evidenced by the certificates representing the common stock, and will be transferred along with the common stock. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 NOTICE OF SPECIAL MEETINGS OF LIMITED PARTNERS TO BE HELD ON , 2001 To the Limited Partners of 46 Parker & Parsley Limited Partnerships: This is a notice that a special meeting of the limited partners of each of the following 46 limited partnerships will be held on , 2001, at 10:00 a.m., at the Dallas Marriott Las Colinas Hotel, 223 West Las Colinas Blvd., Irving, Texas 75039: Parker & Parsley 81-I, Ltd. Parker & Parsley 88-A Conv., L.P. Parker & Parsley 81-II, Ltd. Parker & Parsley 88-A, L.P. Parker & Parsley 82-I, Ltd. Parker & Parsley 88-B Conv., L.P. Parker & Parsley 82-II, Ltd. Parker & Parsley 88-B, L.P. Parker & Parsley 82-III, Ltd. Parker & Parsley 88-C Conv., L.P. Parker & Parsley 83-A, Ltd. Parker & Parsley 88-C, L.P. Parker & Parsley 83-B, Ltd. Parker & Parsley Producing Properties 88-A, L.P. Parker & Parsley 84-A, Ltd. Parker & Parsley Private Investment 88, L.P. Parker & Parsley 85-A, Ltd. Parker & Parsley 89-A Conv., L.P. Parker & Parsley 85-B, Ltd. Parker & Parsley 89-A, L.P. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley 89-B Conv., L.P. Parker & Parsley Selected 85 Private Investment, Ltd. Parker & Parsley 89-B, L.P. Parker & Parsley 86-A, Ltd. Parker & Parsley Private Investment 89, L.P. Parker & Parsley 86-B, Ltd. Parker & Parsley 90-A Conv., L.P. Parker & Parsley 86-C, Ltd. Parker & Parsley 90-A, L.P. Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 90-B Conv., L.P. Parker & Parsley 87-A Conv., Ltd. Parker & Parsley 90-B, L.P. Parker & Parsley 87-A , Ltd. Parker & Parsley 90-C Conv., L.P. Parker & Parsley 87-B Conv., Ltd. Parker & Parsley 90-C, L.P. Parker & Parsley 87-B, Ltd. Parker & Parsley Private Investment 90, L.P. Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley 90 Spraberry Private Development, L.P. Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley 91-A, L.P. Parker & Parsley Private Investment 87, Ltd. Parker & Parsley 91-B, L.P.
Parker & Parsley Petroleum USA, Inc. and other predecessors of Pioneer Natural Resources USA, Inc., a Delaware corporation that we call Pioneer USA, sponsored each of the partnerships. Pioneer USA is the managing or sole general partner of each of the partnerships. Pioneer USA is a direct 100% owned subsidiary of Pioneer Natural Resources Company, a Delaware corporation that we call Pioneer Parent. The purpose of the special meeting for each partnership in which you own an interest is for you to consider and vote on the following matters: 1. A proposal to approve an Agreement and Plan of Merger dated as of September 20, 2001, among Pioneer Parent, Pioneer USA and each of the partnerships. Each partnership that approves this proposal, which we call a participating partnership, will merge with and into Pioneer USA, with Pioneer USA surviving the merger. Each partnership interest of a participating partnership, other than Pioneer USA's partnership interests, will be converted into shares of common stock, par value $.01 per share, of Pioneer Parent. The number of shares of common stock Pioneer Parent will offer for all partnership interests of a participating partnership will be based on (1) the participating partnership's merger value and (2) the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date scheduled for the special meeting for the partnership. The merger value for a participating partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution mailed on July 13, 2001, by the partnership to its partners. For purposes of illustration in this document, we have calculated the number of shares to be issued based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. Prior to the date of the special meeting for each partnership, we will update the number of shares to be issued using the actual average closing price of Pioneer Parent common stock for the ten trading days ending three business 3 days before the initial date of the special meeting. You may call D. F. King & Co., Inc. after , 2001 at 1-800-848-2998 to learn the final number of shares you will receive. The Pioneer Parent common stock will be allocated among the partners based on the liquidation provisions of each partnership agreement. Pioneer Parent will not issue fractional shares to any limited partner upon completion of the merger of any partnership. Instead, Pioneer Parent will round any fractional shares of Pioneer Parent common stock up to the nearest whole share. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in the participating partnerships. 2. A proposal to amend the partnership agreement of each partnership to permit the partnership's merger with Pioneer USA. If the amendment is not approved, that partnership cannot merge into Pioneer USA even if the partners of that partnership approve the merger agreement. 3. A proposal (A) to approve the opinion issued to Pioneer USA by Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, relying as to matters of Texas law on the opinion of Arter & Hadden LLP of Dallas, Texas, on behalf of the limited partners of each partnership that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners (1) will result in the loss of any limited partner's limited liability or (2) will adversely affect the federal income tax classification of the partnership or any of its limited partners and (B) to approve the selection of Stradley Ronon Stevens & Young, LLP, and (as to Texas law matters) Arter & Hadden LLP as special legal counsel for the limited partners of each partnership for the limited purpose of rendering the legal opinion. The partnership agreement of each partnership requires this opinion to be obtained and submitted to the limited partners for their approval. Pioneer USA is also requesting authorization to use its discretionary voting authority to postpone or adjourn the special meeting of limited partners for the purpose of soliciting additional proxies. The accompanying proxy statement/prospectus contains information about each merger, including the amount of Pioneer Parent common stock that will be offered to limited partners per $1,000 initial investment in each partnership, and descriptions of the merger agreement, the merger amendment and the legal opinion of the special legal counsel for the limited partners. The proxy statement/prospectus also contains a copy of the merger agreement, the merger amendment and the legal opinion. Pioneer USA set the close of business on September 21, 2001, as the record date to identify the limited partners who are entitled to notice of and to vote at each special meeting or any adjournments or postponements of the special meeting. During the ten business days before the special meeting, you may examine lists of the limited partners of each partnership in which you own an interest at the offices of Pioneer USA during normal business hours for any purpose relevant to the special meeting for each partnership in which you own an interest. ON SEPTEMBER 19, 2001, PIONEER USA'S BOARD OF DIRECTORS UNANIMOUSLY DETERMINED THAT THE MERGER OF EACH PARTNERSHIP IN WHICH YOU OWN AN INTEREST IS ADVISABLE, FAIR TO YOU AS AN UNAFFILIATED LIMITED PARTNER, AND IN YOUR BEST INTERESTS. THE BOARD RECOMMENDS THAT YOU, AS AN UNAFFILIATED LIMITED PARTNER, VOTE FOR THE MERGER AGREEMENT, THE MERGER AMENDMENT, THE SELECTION OF SPECIAL LEGAL COUNSEL FOR THE LIMITED PARTNERS, THAT COUNSEL'S LEGAL OPINION FOR EACH PARTNERSHIP IN WHICH YOU OWN AN INTEREST, AND THE AUTHORIZATION TO ALLOW PIONEER USA TO USE ITS DISCRETIONARY VOTING AUTHORITY TO POSTPONE OR ADJOURN THE SPECIAL MEETING. ALTHOUGH PIONEER USA'S BOARD OF DIRECTORS HAS ATTEMPTED TO FULFILL ITS FIDUCIARY DUTIES TO YOU, PIONEER USA'S BOARD OF DIRECTORS HAD CONFLICTING INTERESTS IN EVALUATING EACH MERGER BECAUSE EACH MEMBER OF ITS BOARD OF DIRECTORS IS ALSO AN OFFICER OF PIONEER PARENT. Each partnership requires a favorable vote of the holders of a majority of its limited partnership interests to approve the merger agreement, the merger amendment, the selection of special legal counsel for the limited partners and that counsel's legal opinion, except that Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P. each require the favorable vote of the holders, other than Pioneer USA, of 66 2/3% of its limited partnership interests to approve those merger proposals. The postponement or adjournment of the special meeting to solicit additional proxies will require the favorable vote of a majority of the limited partnership interests present or represented at a meeting where such vote is taken. IF YOU DO NOT SEND IN YOUR PROXY CARD OR VOTE AT THE SPECIAL MEETING FOR A PARTNERSHIP IN WHICH YOU OWN AN INTEREST, IT WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGER OF THAT PARTNERSHIP. 4 You are requested to sign, vote and date the enclosed proxy card and return it promptly in the enclosed envelope, even if you expect to be present at each special meeting for the partnerships in which you own an interest. If you give a proxy, you can revoke it at any time before the special meeting for the partnership as to which you are revoking your proxy. If you are present at the special meeting for a partnership in which you own an interest, you may withdraw your proxy and vote in person. WHETHER OR NOT YOU PLAN TO VOTE ON THE MERGER OF EACH PARTNERSHIP IN WHICH YOU OWN AN INTEREST, PLEASE TAKE THE TIME TO COMPLETE AND RETURN TO US THE ENCLOSED CERTIFICATION OF NON-FOREIGN STATUS. BY ORDER OF THE BOARD OF DIRECTORS, MARK L. WITHROW Director, Executive Vice President, General Counsel and Secretary , 2001 5 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. -------------------------------------------------------------------------------- PRELIMINARY PROXY STATEMENT/PROSPECTUS, SUBJECT TO COMPLETION, DATED SEPTEMBER 21, 2001 PIONEER NATURAL RESOURCES COMPANY [PIONEER COMMON STOCK LOGO] PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039
Dear Limited Partners: We at Pioneer Natural Resources USA, Inc., together with our parent company, Pioneer Natural Resources Company, desire to acquire 46 limited partnerships. We are the managing or sole general partner of each of the partnerships. We are a Delaware corporation and call ourselves Pioneer USA. We are a wholly owned subsidiary of Pioneer Natural Resources Company, a Delaware corporation that we call Pioneer Parent. If you and the other limited partners of a partnership approve the merger of the partnership, the partnership will be merged with and into Pioneer USA, with Pioneer USA surviving the merger. We call each partnership that merges into Pioneer USA a participating partnership. Each partnership interest of a participating partnership will be converted into shares of common stock, par value $.01 per share, of Pioneer Parent. The number of shares of common stock Pioneer Parent will offer for all partnership interests of a participating partnership will be based on (1) the participating partnership's merger value and (2) the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date scheduled for the special meeting for the partnership. The merger value for a participating partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution mailed on July 13, 2001, by the partnership to its partners. The merger value for each partnership is based on the reserve value of the partnership's underlying properties, which reserve value has not been reduced for general and administrative expenses. As a result, we believe the merger value is essentially the same value or a higher value than the liquidation value that might have been achieved by selling the partnership's property interests on March 31, 2001, and liquidating the partnership at that time. We have retained Robert A. Stanger & Co., Inc., which we call Stanger, to issue an opinion regarding the fairness of the merger value to the limited partners in connection with the merger of each partnership. The written opinion of Stanger is contained in this document. You should read all of it carefully. We can complete the merger of each partnership only if the holders of its limited partnership interests approve the merger agreement, the amendment to the partnership agreement to permit the merger, the selection of special legal counsel for the limited partners, and that counsel's legal opinion. This document provides information about each proposed merger. This document also constitutes a prospectus by Pioneer Parent for up to an aggregate of 5,947,940 shares of Pioneer Parent common stock to be issued in the proposed merger transaction, based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. Please give all of this information your careful attention. Pioneer Parent's common stock is traded on the New York Stock Exchange under the symbol "PXD." On September 20, 2001, the last reported sale price of the common stock on the NYSE was $15.89 per share. YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special meeting for each partnership in which you own an interest, please take the time to vote by completing and mailing to us the enclosed proxy card. This will not prevent you from revoking your proxy at any time prior to the special meeting for each partnership in which you own an interest or from voting your partnership interests in person if you later choose to attend the special meeting for each partnership in which you own an interest. We intend to mail certificates representing shares of Pioneer Parent common stock to the partners of each partnership that approves the merger transaction promptly after completing the merger of the partnership. Certificates representing partnership interests will be automatically cancelled, and you will not have to surrender your certificates to receive the Pioneer Parent common stock. YOUR CERTIFICATE THAT YOU ARE NOT A FOREIGN PERSON, WHICH WE CALL A CERTIFICATION OF NON-FOREIGN STATUS, IS IMPORTANT. Whether or not you plan to vote on the merger of each partnership in which you own an interest, please take the time to complete and return to us the enclosed certification of non-foreign status. If we receive a properly completed certification of non-foreign status from you, we will not withhold federal income taxes on the Pioneer Parent common stock to be issued to you upon the merger of each partnership in which you own an interest. Sincerely, Pioneer Natural Resources USA, Inc. YOU SHOULD CAREFULLY CONSIDER THE RISKS RELATING TO THE MERGER OF EACH PARTNERSHIP IN WHICH YOU OWN AN INTEREST DESCRIBED IN "RISK FACTORS" BEGINNING ON PAGE 20. THESE INCLUDE: - THE MERGER VALUE FOR THE PARTNERSHIP DETERMINES THE AMOUNT OF PIONEER PARENT COMMON STOCK YOU WILL RECEIVE IN THE MERGER OF THE PARTNERSHIP. PIONEER PARENT AND PIONEER USA DETERMINED EACH MERGER VALUE AND WILL NOT ADJUST IT FOR CHANGES IN PARTNERSHIP VALUE BEFORE THE MERGER IS COMPLETED. - YOU WERE NOT INDEPENDENTLY REPRESENTED IN ESTABLISHING THE TERMS OF ANY MERGER. - OUR BOARD OF DIRECTORS HAD CONFLICTING INTERESTS IN EVALUATING EACH MERGER BECAUSE EACH MEMBER OF OUR BOARD OF DIRECTORS IS ALSO AN OFFICER OF PIONEER PARENT. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED ANY OF THE MERGERS, THE PIONEER PARENT COMMON STOCK TO BE ISSUED IN EACH MERGER OR THE FAIRNESS OR THE MERITS OF EACH MERGER OR HAVE DETERMINED WHETHER THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This proxy statement/prospectus is dated , 2001. It is first being mailed to the limited partners on or about , 2001. 6 PIONEER NATURAL RESOURCES COMPANY The world map below reflects the geographic locations of Pioneer Parent's exploration, development and production operations. (MAP) WHERE YOU CAN FIND MORE INFORMATION Pioneer Parent and each of the 25 partnerships listed below, which we call the reporting partnerships, file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission: Parker & Parsley 82-I, Ltd. Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley 82-II, Ltd. Parker & Parsley 88-A, L.P. Parker & Parsley 83-A, Ltd. Parker & Parsley 88-B, L.P. Parker & Parsley 83-B, Ltd. Parker & Parsley Producing Properties 88-A, L.P. Parker & Parsley 84-A, Ltd. Parker & Parsley 89-A, L.P. Parker & Parsley 85-A, Ltd. Parker & Parsley 90-A L.P. Parker & Parsley 85-B, Ltd. Parker & Parsley 90-B Conv., L.P. Parker & Parsley 86-A, Ltd. Parker & Parsley 90-B, L.P. Parker & Parsley 86-B, Ltd. Parker & Parsley 90-C Conv., L.P. Parker & Parsley 86-C, Ltd. Parker & Parsley 90-C, L.P. Parker & Parsley 87-A, Ltd. Parker & Parsley 91-A, L.P. Parker & Parsley 87-B, Ltd. Parker & Parsley 91-B, L.P. Parker & Parsley Producing Properties 87-A, Ltd.
You may read and copy any reports, statements or other information that Pioneer Parent or any reporting partnership files at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's public reference rooms at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials may also be obtained from the SEC for a fee by writing to the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Pioneer Parent's and each reporting partnership's filings with the SEC are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at www.sec.gov. 7 Pioneer Parent's common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbol "PXD." Pioneer Parent's reports and other information filed with the SEC can also be inspected at the offices of the New York Stock Exchange and the Toronto Stock Exchange. Pioneer Parent filed a registration statement on Form S-4 to register with the SEC Pioneer Parent common stock to be issued to the limited partners of each participating partnership. This document is a part of that registration statement and constitutes the prospectus of Pioneer Parent in addition to being the proxy statement of each partnership. As allowed by SEC rules, this document does not contain all the information you can find in the registration statement or the exhibits to the registration statement. The SEC allows Pioneer Parent to incorporate by reference information into this document, which means that Pioneer Parent can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this document, except for any information superseded by information in this document. This document incorporates by reference the documents set forth below that Pioneer Parent has previously filed with the SEC and that contain important information about Pioneer Parent and its finances: - Annual Report on Form 10-K for the year ended December 31, 2000. - Quarterly Report on Form 10-Q for the six months ended June 30, 2001. - Current Report on Form 8-K filed on July 24, 2001. - The description of Pioneer Parent common stock contained in Pioneer Parent's registration statement on Form 8-A filed on August 5, 1997, as amended by Form 8-A/A filed on August 8, 1997. - The description of rights to acquire Series A Junior Participating Preferred Stock of Pioneer Parent contained in Pioneer Parent's registration statement on Form 8-A filed on July 24, 2001. Pioneer Parent is also incorporating by reference additional documents that it files with the SEC under sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 between the date of this document and the date of the special meeting for each partnership. The supplement to this document for each partnership contains financial information for the partnership. The information supplement for each partnership constitutes an integral part of this document. Please carefully read the supplement for each partnership in which you are a limited partner. Pioneer Parent has supplied all information contained or incorporated by reference in this document relating to Pioneer Parent, and each partnership has supplied all the information contained in this document relating to the partnership. You can obtain any of the documents incorporated by reference from Pioneer Parent or the SEC. Documents incorporated by reference are available from Pioneer Parent without charge. Exhibits to the documents will not be sent, however, unless those exhibits have specifically been incorporated by reference as exhibits in this document. Limited partners of each partnership may obtain documents incorporated by reference in this document by requesting them in writing or by telephone at the following address: Pioneer Natural Resources Company 5205 North O'Connor Blvd., Suite 1400 Irving, Texas 75039 Telephone: (972) 969-3584 Attention: Investor Relations IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM PIONEER PARENT OR ANY PARTNERSHIP IN WHICH YOU OWN AN INTEREST, PLEASE DO SO BY , 2001 [INSERT 5TH BUSINESS DAY BEFORE MEETING] TO RECEIVE THEM BEFORE THE SPECIAL MEETING FOR THE PARTNERSHIP. You should rely only on the information contained or incorporated by reference in this document to vote on the merger of each partnership in which you own an interest. We have not authorized anyone to give any information that is different from what is contained in this document. This document is dated , 2001. You should not assume that the information contained in this document is accurate as of any date other than that date, and neither the mailing of this document to you nor the issuance of Pioneer Parent common stock in the merger of each partnership shall create an implication to the contrary. 8 TABLE OF CONTENTS
PAGE ---- QUESTIONS AND ANSWERS ABOUT THE MERGER OF EACH PARTNERSHIP............................................... v SUMMARY..................................................... 1 RISK FACTORS................................................ 20 RISK FACTORS RELATING TO THE MERGER OF EACH PARTNERSHIP..... 20 The Merger Value for Each Partnership Involves Estimates that May Vary Materially from the Quantities of Oil and Gas Actually Recovered, and Consequently Future Net Revenues May be Materially Different From the Estimates Used in the Calculation of the Merger Value and for a Particular Partnership................................. 20 The Merger Value for a Partnership Will Not Be Adjusted For Changes in Oil and Gas Prices Before the Completion of Its Merger.......................................... 20 The Number of Shares of Pioneer Parent Common Stock the Limited Partners of Each Partnership Will Receive May Decrease Between Now and the Completion of the Merger of the Partnership..................................... 20 Current Market Prices for Oil and Gas May Be Higher than the Merger Value for a Partnership, Which May Affect the Fairness Opinion................................... 20 You Were Not Independently Represented in Establishing the Terms of the Merger of Each Partnership................ 21 The Interests of Pioneer Parent, Pioneer USA and Their Directors and Officers May Differ From Your Interests.. 21 It Is Unclear What the Market Demand Is For Any Partnership or its Assets or That the Terms of the Merger of Each Partnership Are As Favorable As Could Be Obtained in a Third Party Sale......................... 21 Potential Litigation Challenging the Merger of a Partnership May Delay or Block the Merger and, As a Result, Your Receipt of the Pioneer Parent Common Stock.................................................. 21 Repurchase Offers in 2001 by Each of the Six Partnerships with a Repurchase Obligation were Higher than the Merger Value for the Partnership....................... 22 You Could be Bound by the Merger of Each Partnership in Which You Own an Interest Even If You Do Not Vote in Favor of the Merger.................................... 22 RISKS ASSOCIATED WITH AN INVESTMENT IN PIONEER PARENT....... 22 Limited Partners Who Become Pioneer Parent Stockholders Will Own Stock in a Corporation Rather than a Limited Partnership Interest in a Limited Partnership, Resulting in a Fundamental Change in the Nature of Their Investments...................................... 22 Limited Partners Who Become Pioneer Parent Stockholders Will Own an Investment That Will be Subject to the Market Risks Attendant to an Investment in a Public Company................................................ 23 Pioneer Parent Might Not Declare Dividends................ 23 Limited Partners Who Become Pioneer Parent Stockholders May Be Diluted......................................... 23 Dividends Paid to Pioneer Parent Stockholders Are Taxed at Two Levels............................................. 23 Pioneer Parent's Profitability is Highly Dependent on the Prices of Oil and Gas, Which Have Historically Been Very Volatile.......................................... 23 Pioneer Parent's Drilling Activities May Not be Productive............................................. 24 Pioneer Parent May be Required to Recognize Non-cash Charges Relating to Unproved Property Costs............ 24 Pioneer Parent's Growth Depends on its Ability to Acquire Oil and Gas Properties on a Profitable Basis........... 24 If Pioneer Parent is Unable to Dispose of Non-strategic Assets at Acceptable Prices, This Would Hinder its Ability to Make Capital Resources Available for More Profitable Activities.................................. 24 The Operation of Natural Gas Processing Plants Involves the Potential for Damage Claims........................ 25 Pioneer Parent is Not Fully Insured Against Operating Hazards................................................ 25 In the Event of Noncompliance, Liabilities Under Environmental Laws and Regulations Could be Substantial............................................ 25 There are Factors Outside of Pioneer Parent's Control Which Could Impair its Ability to Satisfy its Debt Obligations............................................ 25 The Oil and Gas Industry is Highly Competitive............ 25 Present or Future Regulations Could Adversely Affect Pioneer Parent's Business and Operations............... 25 Pioneer Parent Has International Operations Which are Subject to International Economic and Political Risks.................................................. 25 Numerous Uncertainties Exist in Estimating Pioneer Parent's Quantities of Proved Reserves and Future Net Revenues............................................... 26
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PAGE ---- SPECIAL FACTORS............................................. 27 Background of the Merger of Each Partnership.............. 27 Reasons for the Merger of Each Partnership................ 34 Recommendation of Pioneer USA............................. 37 Fairness Opinion.......................................... 37 Summary Reserve Report.................................... 45 Alternative Transactions to the Merger of Each Partnership............................................ 46 FORWARD-LOOKING STATEMENTS.................................. 48 METHOD OF DETERMINING MERGER VALUE FOR EACH PARTNERSHIP AND AMOUNT OF PIONEER PARENT COMMON STOCK OFFERED............. 49 Components of Merger Value for Each Partnership........... 49 Allocation of Merger Value for Each Partnership Among Partners of the Partnership............................ 50 Other Methods of Determining Merger Values................ 51 THE MERGER OF EACH PARTNERSHIP.............................. 53 General................................................... 53 Legal Opinion for Limited Partners........................ 53 Distribution of Pioneer Parent Common Stock............... 54 Fractional Shares......................................... 54 Material U.S. Federal Income Tax Consequences............. 54 Accounting Treatment...................................... 57 Effect of Debt Owed by a Limited Partner to Pioneer USA on Amount of Pioneer Parent Common Stock to be Received by the Limited Partner.................................... 57 Effect of Merger of Each Partnership on Limited Partners Who Do Not Vote in Favor of the Merger; No Appraisal or Dissenters' Rights..................................... 57 Future of Nonparticipating Partnerships................... 57 Nonmanaging General Partners of Some Partnerships......... 58 Third Party Offers........................................ 58 Merger Amendment.......................................... 59 Termination of Registration and Reporting Requirements.... 59 Elimination of a Fairness Opinion Requirement That Would Otherwise Benefit Pioneer USA.......................... 59 Payment of Expenses and Fees.............................. 60 THE MERGER AGREEMENT........................................ 61 Structure; Effective Time................................. 61 Effect of the Merger of Each Partnership.................. 61 Conduct of Business Prior to the Merger of Each Partnership............................................ 61 Other Agreements.......................................... 61 Representations and Warranties of Pioneer Parent, Pioneer USA and Each Partnership............................... 62 Conditions to the Merger of Each Partnership.............. 62 Termination of the Merger Agreement and the Merger of Any Partnership............................................ 63 Amendments; Waivers....................................... 64 THE SPECIAL MEETINGS........................................ 65 Time and Place; Purpose................................... 65 Record Date; Voting Rights and Proxies.................... 66 Revocation of Proxies..................................... 67 Solicitation of Proxies................................... 67 Quorum.................................................... 67 Required Vote; Broker Non-Votes........................... 68 Participation by Assignees................................ 68 Special Requirements for Some Limited Partners............ 68 Validity of Proxy Cards................................... 68 Local Laws................................................ 69 COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION............................................... 69
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PAGE ---- INTERESTS OF PIONEER PARENT, PIONEER USA AND THEIR DIRECTORS AND OFFICERS.............................................. 70 Conflicting Duties of Pioneer USA, Individually and as General Partner........................................ 70 Pioneer USA's Employees Provide Services to the Partnerships........................................... 70 Financial Interests of Directors and Officers............. 70 The Partnerships Pay Operator Fees to Pioneer USA......... 70 OWNERSHIP OF PARTNERSHIP INTERESTS.......................... 71 TRANSACTIONS AMONG ANY PARTNERSHIP, PIONEER PARENT, PIONEER USA AND THEIR DIRECTORS AND OFFICERS...................... 71 MANAGEMENT.................................................. 73 Pioneer Parent............................................ 73 Pioneer USA............................................... 75 PIONEER PARENT.............................................. 75 Key Projects to Increase Production....................... 76 More Information.......................................... 76 THE PARTNERSHIPS............................................ 77 General................................................... 77 The Drilling Partnerships................................. 77 The Income Partnerships................................... 78 COMPARISON OF RIGHTS OF STOCKHOLDERS AND PARTNERS........... 79 General................................................... 79 Summary Comparison of Terms of Shares of Pioneer Parent Common Stock and Partnership Interests................. 80 LEGAL MATTERS............................................... 87 INDEPENDENT AUDITORS AND INDEPENDENT PETROLEUM CONSULTANTS............................................... 87 COMMONLY USED OIL AND GAS TERMS............................. 88 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........... P-1
LIST OF APPENDICES
APPENDIX -------- General Information Relating to Each Partnership........................ A Table 1 Jurisdiction of Organization, Initial Subscription Price for Each Unit, Initial Investment by Limited Partners and Number of Limited Partners as of July 31, 2001 Table 2 Merger Value Attributable to Pioneer USA, Nonmanaging General Partners and Limited Partners Table 3 Merger Value Attributable to Partnership Interests of Limited Partners Per $1,000 Investment Table 4 Ownership Percentage and Merger Value Attributable to Nonmanaging General Partners Other Than Pioneer USA Table 5 Ownership Percentage and Merger Value Attributable to Pioneer USA in Its Capacities as General Partner, Nonmanaging General Partner and Limited Partner Table 6 Voting Percentage and Initial Investment Owned by Pioneer USA in Its Capacity as a Limited Partner as of July 31, 2001 Table 7 Historical Quarterly Partnership Distributions to the Limited Partners Per $1,000 Investment from Inception through July 31, 2001 Table 8 Annual Repurchase Prices and Aggregate Annual Repurchase Payments Table 9 Participation in Costs and Revenues of Each Partnership Table 10 Average Oil, Natural Gas Liquids and Gas Sales Prices and Production Costs for the Six Months Ended June 30, 2001 and 2000 and the Years Ended December 31, 2000, 1999 and 1998 Table 11 Proved Reserves Attributable to Pioneer USA, Nonmanaging General Partners and Limited Partners as of December 31, 2000 Table 12 Partnership Estimated Reserves Attributable to Pioneer USA, Nonmanaging General Partners and Limited Partners as of March 31, 2001
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APPENDIX -------- Table 13 Oil, Natural Gas Liquids and Gas Production for the Six Months Ended June 30, 2001 and 2000 and the Years Ended December 31, 2000, 1999 and 1998 Table 14 Productive Wells and Developed Acreage as of June 30, 2001 Table 15 Recent Trades of Partnership Interests Per $1,000 Investment for the Seven Months Ended July 31, 2001 and the Years Ended December 31, 2000 and 1999 Table 16 Reserve Value Attributable to Pioneer USA, Nonmanaging General Partners and Limited Partners as of March 31, 2001 Summary Reserve Review of Williamson Petroleum Consultants, Inc. for the Partnerships as of March 31, 2001..................................... B Summary Reserve Report of Williamson Petroleum Consultants, Inc. for the Partnerships as of December 31, 2000.................................. C Fairness Opinion of Robert A. Stanger & Co., Inc. ...................... D The Merger Proposals.................................................... E Agreement and Plan of Merger............................................ F
WE HAVE PREPARED A SEPARATE SUPPLEMENT TO THIS DOCUMENT FOR EACH PARTNERSHIP. EACH SUPPLEMENT INCLUDES: - A TABLE CONTAINING: - THE AGGREGATE INITIAL INVESTMENT BY THE LIMITED PARTNERS - THE AGGREGATE HISTORICAL LIMITED PARTNER DISTRIBUTIONS THROUGH JULY 31, 2001 - THE MERGER VALUE ATTRIBUTABLE TO PARTNERSHIP INTERESTS OF LIMITED PARTNERS, EXCLUDING PIONEER USA - THE MERGER VALUE PER $1,000 LIMITED PARTNER INVESTMENT - THE MERGER VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS A MULTIPLE OF DISTRIBUTIONS FOR THE PAST FOUR QUARTERLY DISTRIBUTIONS INCLUDING THE DISTRIBUTION IN JULY 2001 - THE BOOK VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS OF JUNE 30, 2001, AND AS OF DECEMBER 31, 2000 - THE GOING CONCERN VALUE PER $1,000 LIMITED PARTNER INVESTMENT - THE LIQUIDATION VALUE PER $1,000 LIMITED PARTNER INVESTMENT - THE ORDINARY TAX LOSS PER $1,000 LIMITED PARTNER INVESTMENT IN YEAR OF INITIAL INVESTMENT - INFORMATION ABOUT: - THE LEGAL OPINION FOR THE LIMITED PARTNERS - THE TERM OF THE PARTNERSHIP - FOR EACH PARTNERSHIP THAT IS SUBJECT TO THE REPORTING REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, WHICH WE CALL A REPORTING PARTNERSHIP, THE PARTNERSHIP'S QUARTERLY REPORT ON FORM 10-Q, INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, FOR THE SIX MONTHS ENDED JUNE 30, 2001 - FOR EACH REPORTING PARTNERSHIP, THE PARTNERSHIP'S ANNUAL REPORT ON FORM 10-K, INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, FOR THE YEAR ENDED DECEMBER 31, 2000 - FOR EACH PARTNERSHIP THAT IS NOT SUBJECT TO THE REPORTING REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, WHICH WE CALL A NONREPORTING PARTNERSHIP, THE PARTNERSHIP'S FINANCIAL STATEMENTS, INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, FOR THE SIX MONTHS ENDED JUNE 30, 2001 - FOR EACH NONREPORTING PARTNERSHIP, THE PARTNERSHIP'S FINANCIAL STATEMENTS, INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, FOR THE YEAR ENDED DECEMBER 31, 2000 - SELECTED HISTORICAL FINANCIAL DATA FOR THE PARTNERSHIP FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 AND THE FIVE YEARS ENDED DECEMBER 31, 2000 THE SUPPLEMENT CONSTITUTES AN INTEGRAL PART OF THIS DOCUMENT FOR EACH PARTNERSHIP. PLEASE CAREFULLY READ ALL OF THE SUPPLEMENTS FOR THE PARTNERSHIPS IN WHICH YOU ARE A LIMITED PARTNER. iv 12 QUESTIONS AND ANSWERS ABOUT THE MERGER OF EACH PARTNERSHIP Q: WHEN AND WHERE ARE THE MEETINGS OF LIMITED PARTNERS? A: The meetings will be held on , 2001, at 10:00 a.m. at the Dallas Marriott Las Colinas Hotel, 223 West Las Colinas Blvd., Irving, Texas 75039. Q: HOW DO I VOTE? A: After reading this document, please fill out and sign your proxy card. Then mail your signed proxy card in the enclosed return envelope as soon as possible so that your partnership interests will be represented at the special meeting for each partnership in which you own an interest. Q: WHAT DOES MY GENERAL PARTNER RECOMMEND I DO? A: The board of directors of the general partner of your partnership recommends that you vote for the merger and the merger proposals for each partnership in which you own an interest. Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD? A: The failure to return your proxy card will have the same effect as voting against the merger for each partnership in which you own an interest. Q: MAY I VOTE IN PERSON? A: Yes. You may attend the special meeting for each partnership in which you own an interest and vote your partnership interests in person, rather than signing and mailing your proxy card. Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD? A: Yes. You may revoke your vote at any time before your proxy is voted at the special meeting for each partnership in which you own an interest by following the instructions beginning on page 67. You then may either change your vote by sending in a new proxy card or by attending the special meeting for each partnership in which you own an interest and voting in person. Q: IF MY PARTNERSHIP INTERESTS ARE HELD IN A RETIREMENT ACCOUNT BY A CUSTODIAN, WILL MY CUSTODIAN VOTE MY PARTNERSHIP INTERESTS FOR ME? A: Your custodian will not be able to vote your partnership interests. You should refer to the instructions included on your proxy card to vote your partnership interests. Q: SHOULD I SEND IN MY CERTIFICATES FOR MY PARTNERSHIP INTERESTS NOW? A: No. If the merger of a partnership in which you own an interest is completed, your certificates representing your partnership interests in that partnership will be cancelled without further action by you. We will mail certificates representing Pioneer Parent common stock issued to you on completion of the merger of that partnership. Q: AM I ENTITLED TO APPRAISAL OR DISSENTERS' RIGHTS? A: No. You will not have any appraisal or dissenters' rights in connection with the merger of any partnership in which you own an interest. Q: WHAT HAPPENS TO MY FUTURE CASH DISTRIBUTIONS? A: Since your partnership interests in participating partnerships will be cancelled upon completion of the merger of each such partnership, you will not receive any future distributions on those interests. Pioneer Parent's board of directors did not declare dividends to the holders of Pioneer Parent common stock during 1999, 2000 or the six months ended June 30, 2001. The amount of dividends, if any, paid by Pioneer Parent in the future will depend on business conditions, its financial condition and earnings, and other factors. Pioneer Parent's common stock is publicly traded, so if you prefer to receive cash you may sell the common stock you receive in the public markets. Q: WHO CAN HELP ANSWER MY QUESTIONS? A: If you have any questions about the merger of any of the partnerships in which you own an interest, please call Pioneer Parent's information agent, D.F. King & Co., Inc., at (800) 848-2998. v 13 SUMMARY To understand the merger of each partnership in which you own an interest and to obtain a more detailed description of the legal terms of each merger, you should carefully read this entire document, the related partnership supplements, and the documents described in "Where You Can Find More Information" on the inside front cover page of this document. For definitions of oil and gas terms used in this document, see "Commonly Used Oil and Gas Terms" on page 88. When we use the terms "Pioneer USA," "we," "us" or "our," we are referring to your sole or managing general partner, Pioneer Natural Resources USA, Inc., including its consolidated subsidiaries and predecessors, unless the context otherwise requires. When we use the term "Pioneer Parent," we are referring to Pioneer Natural Resources Company. When we use the term "merger proposals," we are referring to the proposals to approve the merger agreement, the merger amendment, the selection of special legal counsel for the limited partners and the legal opinion of that counsel. When we use the term "participating partnership," we are referring to each partnership the limited partners of which approve the merger proposals. THE MERGERS Pioneer Parent proposes to acquire each partnership by merging each partnership into us. We will be the survivor of each merger. The partnership interests of each participating partnership, other than our interests, will be converted into Pioneer Parent common stock. The number of shares of common stock that Pioneer Parent will offer for all partnership interests of a participating partnership will be based on (1) the merger value for the partnership as described below and (2) the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date scheduled for the special meeting for the partnership. Pioneer Parent and Pioneer USA determined the merger value for each partnership primarily based on the present value of estimated future net revenues from the partnership's estimated oil and gas reserves at March 31, 2001, which was reviewed by Williamson Petroleum Consultants, Inc. as of March 31, 2001. Pioneer Parent and Pioneer USA used the following parameters in calculating the present value of estimated future net revenues: (1) a five-year New York Mercantile Exchange, or NYMEX, futures price for oil and gas as of March 30, 2001, with prices held constant after year five at the year-five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 10.0% discount rate. For 2001, the oil and gas prices were based on the average NYMEX futures price for the nine-month period beginning on April 1, 2001 and ending December 31, 2001. See the table on page 6 for the NYMEX futures prices. See "Method of Determining Merger Value For Each Partnership and Amount of Pioneer Parent Common Stock Offered -- Components of Merger Value For Each Partnership" on page 49 of this document for information on the basis of pricing. In addition, each partnership's merger value includes its net working capital as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution mailed on July 13, 2001, by the partnership to its partners. The Pioneer Parent common stock will be allocated among the partners of a participating partnership based on the liquidation provisions of the partnership agreement of the partnership. On pages 4 and 5 of this document is a table that shows important information about each partnership, including the amount of Pioneer Parent common stock that will be offered in the merger for each $1,000 of initial investment for that partnership. For purposes of illustration in this document, we have calculated the number of shares to be issued based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. Prior to the date of the special meeting for each partnership, we will update the number of shares to be issued using the actual average closing price of Pioneer Parent common stock for the ten trading days ending three business days before the initial date of the special meeting. You may call D. F. King & Co., Inc. after , 2001 at 1-800-848-2998 to learn the final number of shares you will receive. Pioneer Parent and Pioneer USA agreed to structure the transaction as a merger of each partnership instead of as a property sale followed by liquidation of each partnership because the merger will: - require fewer legal documents; - reduce filing fees and other costs; and - result in the same amount of Pioneer Parent common stock to the limited partners as would a property sale and liquidation using the same commodity prices. Pioneer Parent, Pioneer USA and the partnerships signed the merger agreement on September 20, 2001. However, if the oil and gas commodity prices materially increase or decrease from the prices used in calculating the merger value for any partnership, Pioneer Parent or Pioneer USA might abandon the proposed merger of the partnership before submitting the merger proposals to the limited partners for approval. In addition, Pioneer Parent may abandon the proposed merger of any or all of the 1 14 partnerships at any time prior to the special meeting for any such partnership for any reason including changes in, among other things, the price of Pioneer Parent common stock, the market prices for oil and gas generally or the oil and gas industry generally. THE COMPANIES PIONEER NATURAL RESOURCES COMPANY 5205 North O'Connor Blvd., Suite 1400 Irving, Texas 75039 (972) 444-9001 Pioneer Parent prepared this document to offer its common stock to you. If your partnership is merged into Pioneer USA, you will receive common stock of Pioneer Parent. Pioneer Parent is a large, independent exploration and production company with total proved reserves equivalent to 3.8 trillion cubic feet of natural gas, or 628 million barrels of oil at December 31, 2000. Pioneer Parent's proved reserves are balanced equally between natural gas and oil, and Pioneer Parent has a reserves-to-production ratio of 14 years. Sixty-seven percent of Pioneer Parent's proved reserves are in three U.S. areas: the Hugoton gas field, the West Panhandle gas field, and the Spraberry oil and natural gas field. Pioneer Parent also has properties in East Texas, the Gulf Coast, and the offshore Gulf of Mexico as well as in Argentina, Canada, South Africa, and Gabon. Pioneer Parent seeks to increase net asset value and production by combining lower risk development drilling with higher-risk exploration activity. Pioneer Parent's common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol "PXD." See "Pioneer Parent" on page 75 of this document for more information about Pioneer Parent. Pioneer Parent files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. Those SEC filings are available to you in the same manner as each reporting partnership's information. See "Where You Can Find More Information" on the inside front cover page of this document. PIONEER NATURAL RESOURCES USA, INC. 5205 North O'Connor Blvd., Suite 1400 Irving, Texas 75039 (972) 444-9001 We prepared this document to solicit your proxy. We are a 100% owned subsidiary of Pioneer Parent. We directly own almost all of Pioneer Parent's United States oil and gas properties. THE PARTNERSHIPS c/o Pioneer Natural Resources USA, Inc. 5205 North O'Connor Blvd., Suite 1400 Irving, Texas 75039 (972) 444-9001 The name of each partnership is found in the table beginning on page 4. Each partnership produces and sells oil and gas. Each partnership was formed to provide the general and limited partners cash flow from operations and, except for Parker & Parsley Producing Properties 87-A, Ltd., Parker & Parsley Producing Properties 87-B, Ltd. and Parker & Parsley Producing Properties 88-A, L.P., a one time federal income tax deduction for intangible drilling and development costs. See the supplement to this document for each of your partnerships for specific information about the partnership, including the merger value as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001. As a result of each partnership's oil and gas operations, each partnership distributes cash to the limited and general partners from the partnership's net cash flows. These distributions are made quarterly, unless sufficient cash is not available. The partnerships' properties consist of interests in approximately 1,100 oil and gas wells that are located primarily in the Spraberry field of the Permian Basin of West Texas. We operate approximately 92% of the partnerships' wells. At December 31, 2000, the partnerships' combined total proved reserves were 33.6 million barrels of oil equivalent, or MMBOE, consisting of 27.3 million barrels, or MMBbls, of oil and natural gas liquids and 37.6 billion cubic feet, or Bcf, of natural gas. Approximately 93% of the reserves are attributable to the limited partners' partnership interests, excluding partnership interests we directly own. Approximately 81% of the total proved reserves attributable to the properties are oil and liquids, and 19% are natural gas, based on six Mcf of gas being equivalent to one Bbl of oil. See "The Partnerships" on page 77 of this document for more information about the partnerships. RISK FACTORS You should carefully consider the risks relating to the merger of each partnership in which you own an interest described in "Risk Factors" beginning on page 20 of this document. These include: - The merger value for the partnership determines the amount of Pioneer Parent common stock you will receive in the merger of the partnership. Pioneer Parent and Pioneer USA determined each 2 15 merger value and will not adjust it for changes in partnership value before the merger is completed. - You were not independently represented in establishing the terms of any merger. - Our board of directors had conflicting interests in evaluating each merger because each member of our board of directors is also an officer of Pioneer Parent. - Repurchase offers in 2001 by each of the six partnerships with a repurchase obligation were higher than the merger value for the partnership. - Limited partners who become Pioneer Parent stockholders will own stock in a corporation rather than a limited partnership interest in a limited partnership, resulting in a fundamental change in the nature of their investments. SUMMARY TABLE -- MERGER VALUE AND AMOUNT OF INITIAL LIMITED PARTNER INVESTMENT REPAID The table on pages 4 and 5 contains the following summary information for each partnership: - the merger value attributable to: - Pioneer USA's partnership interests, whether general or limited; - the partnership interests of the unaffiliated limited partners of the nonmanaging general partner, if any, of each partnership; - the limited partners' partnership interests, including the estimated number of shares of Pioneer Parent common stock offered to the limited partners other than Pioneer USA; - for each $1,000 initial limited partner investment in the partnership: - the estimated number of shares of Pioneer Parent common stock offered; - the merger value; - the total historical cash distributions through July 31, 2001; and - the total amount of initial investment by the limited partners that has been repaid, after giving effect to the merger of the partnership, stated in dollars and as a percentage; and - the reserve value attributable to the limited partners other than Pioneer USA per barrel of oil equivalent, or BOE. This information is based on assumptions, including the following: - Pioneer Parent and Pioneer USA estimated the present value of estimated future net revenues for each partnership from the estimated reserves for each partnership at March 31, 2001. - Pioneer Parent and Pioneer USA used the following parameters in calculating the present value of estimated future net revenues: (1) a five-year NYMEX futures price for oil and gas as of March 30, 2001, with prices held constant after year five at the year-five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a discount rate of 10.0%. - Williamson Petroleum Consultants, Inc. reviewed these estimates of each partnership's reserves as of March 31, 2001. Williamson's review included testing and evaluating the reserve information for all of the properties of each partnership. The review is more comprehensive than an audit, which involves testing and evaluating the reserve information of a representative subgroup of properties of each partnership. See "Method of Determining Merger Value for Each Partnership and Amount of Pioneer Parent Common Stock Offered -- Components of Merger Value for Each Partnership." You should read the following table together with the detailed information in Table 2 and Table 3 of Appendix A to this document, including the footnotes to those tables. For purposes of illustration in this document, we have calculated the number of shares to be issued based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. Prior to the date of the special meeting for each partnership, we will update the number of shares to be issued using the actual average closing price of Pioneer Parent common stock for the ten trading days ending three business days before the initial date scheduled for the special meeting. Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. See Table 1 of Appendix A to this document for the initial subscription price for each unit. 3 16 SUMMARY TABLE -- MERGER VALUE AND AMOUNT OF INITIAL LIMITED PARTNER INVESTMENT REPAID
MERGER VALUE ---------------------------------------------------------- LIMITED PARTNERS NONMANAGING ------------------------------- PIONEER GENERAL ESTIMATED USA PARTNERS NUMBER OF ---------- ----------- SHARES OF PIONEER MERGER MERGER MERGER COMMON STOCK VALUE VALUE VALUE OFFERED(a) ---------- ----------- ------------ ---------------- Parker & Parsley 81-I, Ltd. ..... $ 235,285 $ 16,888 $ 653,690 36,317 Parker & Parsley 81-II, Ltd. .... 160,791 6,535 526,536 29,252 Parker & Parsley 82-I, Ltd. ..... 410,553 13,871 868,381 48,244 Parker & Parsley 82-II, Ltd. .... 433,854 13,187 1,210,097 67,228 Parker & Parsley 82-III, Ltd. ... 305,910 9,927 787,628 43,758 Parker & Parsley 83-A, Ltd. ..... 962,385 37,202 2,660,522 147,807 Parker & Parsley 83-B, Ltd. ..... 1,310,513 49,882 3,564,642 198,036 Parker & Parsley 84-A, Ltd. ..... 1,313,732 55,855 3,741,823 207,880 Parker & Parsley 85-A, Ltd. ..... 39,179 -- 1,299,886 72,216 Parker & Parsley 85-B, Ltd. ..... 20,208 -- 1,155,472 64,193 Parker & Parsley Private Investment 85-A, Ltd. ......... 47,872 -- 1,370,151 76,120 Parker & Parsley Selected 85 Private Investment, Ltd. ...... 28,332 -- 1,025,397 56,967 Parker & Parsley 86-A, Ltd. ..... 23,353 -- 1,716,778 95,377 Parker & Parsley 86-B, Ltd. ..... 69,533 -- 3,934,914 218,607 Parker & Parsley 86-C, Ltd. ..... 42,190 -- 3,184,609 176,923 Parker & Parsley Private Investment 86, Ltd. ........... 13,416 -- 1,328,134 73,786 Parker & Parsley 87-A Conv., Ltd. .......................... 14,805 -- 764,998 42,500 Parker & Parsley 87-A, Ltd. ..... 92,985 -- 5,713,729 317,430 Parker & Parsley 87-B Conv., Ltd. .......................... 12,399 -- 1,019,742 56,653 Parker & Parsley 87-B, Ltd. ..... 51,532 -- 4,166,286 231,461 Parker & Parsley Producing Properties 87-A, Ltd. ......... 35,395 -- 2,589,227 143,846 Parker & Parsley Producing Properties 87-B, Ltd. ......... 61,106 -- 2,296,689 127,594 Parker & Parsley Private Investment 87, Ltd. ........... 26,261 -- 2,599,862 144,437 Parker & Parsley 88-A Conv., L.P............................ 21,776 -- 922,941 51,275 Parker & Parsley 88-A, L.P....... 75,042 -- 3,153,865 175,215 Parker & Parsley 88-B Conv., L.P............................ 19,347 -- 1,233,237 68,514 Parker & Parsley 88-B, L.P....... 62,940 -- 3,023,397 167,967 PER $1,000 INITIAL LIMITED PARTNER INVESTMENT ---------------------------------------------------------------- ESTIMATED NUMBER OF DISTRIBUTIONS LIMITED SHARES OF FROM AMOUNT OF INITIAL PARTNERS' PIONEER INCEPTION INVESTMENT REPAID RESERVE COMMON STOCK MERGER THROUGH -------------------- VALUE PER OFFERED(a) VALUE JULY 31, 2001 $ % BOE ------------ ---------- ------------- ---------- ------- --------- Parker & Parsley 81-I, Ltd. ..... 5.21 $ 93.68 $ 657.13 $ 750.81 75.08% $3.92 Parker & Parsley 81-II, Ltd. .... 4.57 82.20 841.87 924.07 92.41% 3.52 Parker & Parsley 82-I, Ltd. ..... 4.63 83.32 985.93 1,069.25 106.93% 3.62 Parker & Parsley 82-II, Ltd. .... 5.74 103.27 1,141.98 1,245.25 124.53% 4.07 Parker & Parsley 82-III, Ltd. ... 6.76 121.71 985.34 1,107.05 110.71% 3.83 Parker & Parsley 83-A, Ltd. ..... 7.90 142.17 1,328.26 1,470.43 147.04% 3.55 Parker & Parsley 83-B, Ltd. ..... 8.88 159.87 1,532.16 1,692.03 169.20% 3.56 Parker & Parsley 84-A, Ltd. ..... 11.06 199.06 1,471.45 1,670.51 167.05% 3.53 Parker & Parsley 85-A, Ltd. ..... 7.66 137.90 757.31 895.21 89.52% 3.83 Parker & Parsley 85-B, Ltd. ..... 8.09 145.71 954.81 1,100.52 110.05% 4.01 Parker & Parsley Private Investment 85-A, Ltd. ......... 15.60 280.77 1,131.64 1,412.41 141.24% 4.36 Parker & Parsley Selected 85 Private Investment, Ltd. ...... 12.36 222.43 967.15 1,189.58 118.96% 3.98 Parker & Parsley 86-A, Ltd. ..... 9.45 170.04 1,369.16 1,539.20 153.92% 3.77 Parker & Parsley 86-B, Ltd. ..... 12.80 230.38 1,575.72 1,806.10 180.61% 4.17 Parker & Parsley 86-C, Ltd. ..... 9.19 165.38 1,486.92 1,652.30 165.23% 3.74 Parker & Parsley Private Investment 86, Ltd. ........... 15.00 269.95 1,634.33 1,904.28 190.43% 4.08 Parker & Parsley 87-A Conv., Ltd. .......................... 11.12 200.21 1,332.03 1,532.24 153.22% 4.08 Parker & Parsley 87-A, Ltd. ..... 11.08 199.53 1,332.10 1,531.63 153.16% 4.11 Parker & Parsley 87-B Conv., Ltd. .......................... 11.54 207.73 1,251.46 1,459.19 145.92% 3.91 Parker & Parsley 87-B, Ltd. ..... 11.55 207.86 1,251.53 1,459.39 145.94% 3.91 Parker & Parsley Producing Properties 87-A, Ltd. ......... 11.82 212.75 1,000.38 1,213.13 121.31% 3.92 Parker & Parsley Producing Properties 87-B, Ltd. ......... 21.27 382.94 1,127.05 1,509.99 151.00% 4.15 Parker & Parsley Private Investment 87, Ltd. ........... 13.78 248.07 1,575.74 1,823.81 182.38% 4.32 Parker & Parsley 88-A Conv., L.P............................ 13.70 246.58 1,120.44 1,367.02 136.70% 4.06 Parker & Parsley 88-A, L.P....... 13.73 247.13 1,120.54 1,367.67 136.77% 4.06 Parker & Parsley 88-B Conv., L.P............................ 18.95 341.05 1,129.70 1,470.75 147.08% 4.38 Parker & Parsley 88-B, L.P....... 18.96 341.24 1,129.74 1,470.98 147.10% 4.38
-4- 17
MERGER VALUE ---------------------------------------------------------- LIMITED PARTNERS NONMANAGING ------------------------------- PIONEER GENERAL ESTIMATED USA PARTNERS NUMBER OF ---------- ----------- SHARES OF PIONEER MERGER MERGER MERGER COMMON STOCK VALUE VALUE VALUE OFFERED(A) ---------- ----------- ------------ ---------------- Parker & Parsley 88-C Conv., L.P............................ $ 13,021 -- $ 996,208 55,345 Parker & Parsley 88-C, L.P....... 8,602 -- 706,056 39,226 Parker & Parsley Producing Properties 88-A, L.P........... 35,259 -- 2,053,405 114,079 Parker & Parsley Private Investment 88, L.P............. 35,389 -- 3,503,510 194,640 Parker & Parsley 89-A Conv., L.P............................ 9,382 -- 928,839 51,603 Parker & Parsley 89-A, L.P....... 62,877 -- 2,731,848 151,770 Parker & Parsley 89-B Conv., L.P............................ 23,451 -- 1,761,305 97,851 Parker & Parsley 89-B, L.P....... 39,784 -- 1,924,144 106,897 Parker & Parsley Private Investment 89, L.P............. 31,687 -- 1,998,362 111,021 Parker & Parsley 90-A Conv., L.P............................ 9,413 -- 583,543 32,420 Parker & Parsley 90-A, L.P....... 53,832 -- 1,662,363 92,354 Parker & Parsley 90-B Conv., L.P............................ 54,557 -- 3,220,716 178,929 Parker & Parsley 90-B, L.P....... 111,674 -- 8,788,939 488,275 Parker & Parsley 90-C Conv., L.P............................ 26,279 -- 1,858,388 103,244 Parker & Parsley 90-C, L.P....... 36,882 -- 2,984,323 165,796 Parker & Parsley Private Investment 90, L.P............. 52,606 -- 3,360,078 186,671 Parker & Parsley 90 Spraberry Private Dev., L.P.............. 16,330 -- 1,616,696 89,817 Parker & Parsley 91-A, L.P....... 65,445 -- 4,665,291 259,183 Parker & Parsley 91-B, L.P....... 55,026 -- 5,002,516 277,918 ---------- -------- ------------ --------- $6,632,190 $203,347 $106,859,163 5,936,642 ========== ======== ============ ========= PER $1,000 INITIAL LIMITED PARTNER INVESTMENT ---------------------------------------------------------------- ESTIMATED NUMBER OF DISTRIBUTIONS LIMITED SHARES OF FROM AMOUNT OF INITIAL PARTNERS' PIONEER INCEPTION INVESTMENT REPAID RESERVE COMMON STOCK MERGER THROUGH -------------------- VALUE PER OFFERED(A) VALUE JULY 31, 2001 $ % BOE ------------ ---------- ------------- ---------- ------- --------- Parker & Parsley 88-C Conv., L.P............................ 16.27 $ 292.92 $ 1,052.80 $ 1,345.72 134.57% $4.31 Parker & Parsley 88-C, L.P....... 16.17 291.04 1,052.39 1,343.43 134.34% 4.31 Parker & Parsley Producing Properties 88-A, L.P........... 20.47 368.52 1,234.73 1,603.25 160.33% 4.28 Parker & Parsley Private Investment 88, L.P............. 19.54 351.76 1,185.95 1,537.71 153.77% 4.35 Parker & Parsley 89-A Conv., L.P............................ 18.45 332.08 1,070.24 1,402.32 140.23% 4.11 Parker & Parsley 89-A, L.P....... 18.48 332.67 1,070.30 1,402.97 140.30% 4.11 Parker & Parsley 89-B Conv., L.P............................ 15.56 280.15 931.42 1,211.57 121.16% 4.05 Parker & Parsley 89-B, L.P....... 15.54 279.80 931.43 1,211.23 121.12% 4.05 Parker & Parsley Private Investment 89, L.P............. 15.81 284.67 800.47 1,085.14 108.51% 4.31 Parker & Parsley 90-A Conv., L.P............................ 13.83 248.84 909.70 1,158.54 115.85% 4.11 Parker & Parsley 90-A, L.P....... 13.86 249.45 909.76 1,159.21 115.92% 4.11 Parker & Parsley 90-B Conv., L.P............................ 15.14 272.55 736.72 1,009.27 100.93% 4.24 Parker & Parsley 90-B, L.P....... 15.17 273.11 736.80 1,009.91 100.99% 4.24 Parker & Parsley 90-C Conv., L.P............................ 13.76 247.75 657.33 905.08 90.51% 4.21 Parker & Parsley 90-C, L.P....... 13.72 247.05 657.33 904.38 90.44% 4.21 Parker & Parsley Private Investment 90, L.P............. 17.11 307.98 823.21 1,131.19 113.12% 4.60 Parker & Parsley 90 Spraberry Private Dev., L.P.............. 17.27 310.90 760.35 1,071.25 107.13% 3.78 Parker & Parsley 91-A, L.P....... 22.39 403.05 854.43 1,257.48 125.75% 4.52 Parker & Parsley 91-B, L.P....... 24.73 445.11 737.60 1,182.71 118.27% 4.44
--------------- (a) For purposes of illustration in this document, the number of shares of Pioneer common stock offered is based upon an assumed average closing price of $18.00 per share of Pioneer common stock. -5- 18 NYMEX FUTURES PRICES The following table shows the NYMEX futures prices for oil and gas as of March 30, 2001, which Pioneer Parent and Pioneer USA used in the calculation of the reserve value portion of the merger value for each partnership:
DATE OILS ($/Bbl) GAS ($/Mcf)(1) ---- ------------ -------------- April - December 2001....................................... 26.17 5.18 2002........................................................ 24.36 4.61 2003........................................................ 22.83 4.16 2004........................................................ 22.31 4.09 2005........................................................ 21.97 4.12 Thereafter.................................................. 21.97 4.12
--------------- (1) The NYMEX price for gas is quoted in dollars per million British thermal units, or MMBTU. We converted those prices to dollars per thousand cubic feet, or Mcf. The reserve value portion of the merger value for each partnership was calculated using a 10.0% discount rate. EXAMPLE CALCULATION OF MERGER VALUE FOR PARKER & PARSLEY 81-I, LTD. Merger value for limited partners: Reserve value (Table 16 of Appendix A to this document)... (1) $ 652,136 Plus working capital value................................ (2) 65,041 Less estimated merger expenses and fees................... (3) (11,675) Less July 2001 distribution............................... (4) (51,812) ---------- Merger value (page 4 of this document and Table 2 of Appendix A to this document)........................... (5) $ 653,690 ========== Aggregate estimated number of shares of Pioneer Parent common stock offered to limited partners of the partnership before rounding............................... 36,316.11 (5) divided by $18.00 ========== Aggregate estimated number of shares of Pioneer Parent common stock offered to limited partners of the partnership rounded up to the nearest whole share......... (6) 36,317 ========== Initial investment: Initial investment by limited partners (Table 1 of Appendix A to this document)........................... $7,410,000 Less initial investment by Pioneer USA (Table 6 of Appendix A to this document)........................... 433,000 ---------- Initial investment without Pioneer USA.................... $6,977,000 ========== Number of per $1,000 limited partner investments:........... (7) 6,977 ========== Per $1,000 limited partner investment as set forth in Table 3 of Appendix A to this document: Reserve value............................................. $ 93.46 (1) divided by (7) Working capital value..................................... 9.32 (2) divided by (7) Less estimated merger expenses and fees................... (1.67) (3) divided by (7) Less July 2001 distribution............................... (7.43) (4) divided by (7) ---------- Merger value.............................................. (8) $ 93.68 ========== Number of shares of Pioneer Parent common stock offered per $1,000 limited partner investment......................... 5.21 (8) divided by $18.00 ==========
For purposes of illustration in this calculation, we have calculated the estimated number of shares offered based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. You may call D.F. King & Co., Inc., after , 2001, at 1-800-848-2998 to learn the final number of shares you will receive. 6 19 BENEFITS AND DISADVANTAGES TO THE LIMITED PARTNERS We believe the merger of each partnership provides the following benefits to the limited partners of the partnership: Liquidity. None of the partnership interests of any of the partnerships is traded on a national stock exchange or in any other significant market. No liquid market exists for interests in any of the partnerships. Although some partnership interests are occasionally sold in private or an informal secondary market for limited partner securities, we believe the potential buyers in such transactions are few and the prices generally reflect a significant discount for illiquidity. See Table 15 of Appendix A for historical information about recent trades of partnership interests in each partnership. Repurchase obligations exist in only a few of the partnerships and are limited in both amount and price by formula in the partnership agreements. See Table 8 of Appendix A for repurchase information. The merger of each partnership provides liquidity to the limited partners of that partnership at a price based on oil and gas reserve values, not on limited market demand for illiquid partnership interests. All limited partners of a participating partnership will receive Pioneer Parent common stock in exchange for their partnership interests shortly after completion of the merger of the partnership. Shares of Pioneer Parent common stock are freely transferable and listed on the New York Stock Exchange and the Toronto Stock Exchange. On April 16, 2001, the last full trading day prior to the announcement of the proposed merger of each partnership, the last reported sales price of Pioneer Parent common stock, as reported by the New York Stock Exchange, was $17.27. On September 20, 2001, that price was $15.89 per share. Oil and Gas Investment Vehicle. For those limited partners who do not wish to liquidate their investment into cash but wish to remain invested in the oil and gas industry, we believe Pioneer Parent's common stock provides an attractive oil and gas investment vehicle because: - Expansion and Balancing of Reserves. The limited partners will have the opportunity to benefit from Pioneer Parent's efforts (1) to expand its reserve base through acquisitions and development or exploratory drilling, and (2) to maintain a strategic balance between oil and natural gas reserves. At December 31, 2000, Pioneer Parent's reserve mix was 50% oil and NGLs and 50% natural gas compared to the combined partnerships' reserve mix of 81% oil and NGLs and 19% natural gas at such date. - Geographic Diversification and Large Oil and Gas Reserve Base. Pioneer Parent's oil and gas reserves are substantially larger and more geographically diversified than the properties of any partnership individually. This increased size and the resulting consolidation of operations spread the risk of an investment in Pioneer Parent over a broader group of assets and reduces the dependence of the investment upon the performance of any particular asset or group of assets, such as assets in the same geographical area. Liquidation Value. The merger value for each partnership is based on the value of the underlying properties, which we believe is essentially the same value or a higher value than could be achieved by selling the partnership's property interests and liquidating the partnership at that time. In addition, we believe that the value of Pioneer Parent common stock to be distributed to each limited partner in the merger of each partnership is higher than what the limited partners would otherwise receive over the life of the partnership, assuming the same oil and gas commodity prices and operating costs as used to determine the reserve value for each partnership and giving effect to the time value of money, for the following reasons: - The partnership agreement for each partnership requires cash distributions to be reduced by general and administrative expenses allocable to the partnership. The merger value for each partnership reflects a liquidation value that has not been reduced for general and administrative expenses, although it has been reduced by each partnership's share of the expenses of the merger, which are estimated to be a total of $2.0 million. - The merger value for each partnership is based primarily upon the reserve value for the partnership, which was determined using recent NYMEX futures oil and gas prices that are, on average, higher than historical oil and gas prices. It is likely that actual oil and gas prices will vary often and possibly widely, as has been demonstrated historically, from the prices used to prepare these estimates. Although future oil and gas prices could be higher than the prices on March 30, 2001 which were used in calculating the merger value for each partnership, using a fixed date for determining the merger value for each partnership eliminates the potential loss in value that could occur if oil and gas prices decline. Acceleration of Realization of Value. Pioneer Parent's common stock provides the limited partners of each participating partnership with liquidity earlier than if the limited partners remain in the partnership and receive the expected ordinary cash distributions from oil and gas production. Because each partnership's properties are mature producing properties, we believe that production from those properties will continue to decline at the rate predicted in the partnership's oil and gas engineering reserve reports. Accordingly, cash distributions from each partnership are also expected to decline, subject to variation for changes in oil and gas prices. 7 20 Elimination of Partnership Tax Reports. The merger of each participating partnership will eliminate the limited partners' Schedule K-1 tax reports for the partnership for tax years after the merger occurs. This is expected to simplify the limited partners' individual tax return preparation and reduce preparation costs. We also considered the following disadvantages of the merger of each partnership: - Limited partners of each partnership will own stock in a corporation, which is a different investment objective from investing in a partnership designed to generate recurring cash distributions. - Limited partners who become Pioneer Parent stockholders will no longer receive partnership cash distributions. - Pioneer Parent will engage in the acquisition, exploration and development of new oil and gas properties that will expose limited partners of each partnership to all of the attendant risks associated with such activities. Each partnership owns producing properties and does not conduct drilling activities. Pioneer Parent's activities may, therefore, involve greater risks than the activities of each partnership. - Increases in prices for oil and gas may have a more direct effect on limited partners of each partnership due to the immediate effect on potential cash distributions. - Limited partners who become Pioneer Parent stockholders will be subject to the volatility of the market value of Pioneer Parent common stock. Market factors that may affect the common stock price will include factors other than those that affect the value of a limited partner's interest in a partnership, such as general market conditions. Accordingly, the price for which a limited partner may be able to sell the Pioneer Parent common stock received in the merger may be lower than the value used to determine the number of shares issued in the merger. - Limited partners who become Pioneer Parent stockholders may have to recognize a taxable gain on the transaction. - Limited partners of each participating partnership will pay their pro rata share of the expenses and fees to be incurred in connection with the merger of each partnership. See "Payment of Expenses and Fees" on page 60 of this document for more information about the aggregate estimated merger expenses and fees to be incurred. FRACTIONAL SHARES Pioneer Parent will not issue fractional shares to any limited partner upon completion of the merger of any partnership. Instead, Pioneer Parent will round any fractional shares of Pioneer Parent common stock up to the nearest whole share. RECOMMENDATION TO LIMITED PARTNERS (SEE PAGE 37) On August 20, 2001, our board of directors unanimously determined that the merger of each partnership in which you own an interest is advisable, fair to you, as an unaffiliated limited partner, and in your best interests. Our board recommends that you, as an unaffiliated limited partner, vote for the merger proposals for each partnership in which you own an interest. Although our board of directors has attempted to fulfill its fiduciary duties to you, our board of directors had conflicting interests in evaluating each merger because each member of our board of directors is also an officer of Pioneer Parent. FAIRNESS In deciding to approve the merger of each partnership on August 20, 2001, our board of directors decided that each merger of a partnership in which you own an interest is advisable, fair to you as an unaffiliated limited partner, and in your best interests based on a variety of factors. These factors include: - the form and amount of consideration offered to you; - the comparison of the amount of Pioneer Parent common stock offered in each merger to the future cash distributions otherwise expected as oil and gas production continues to decline and general and administrative expenses continue to be incurred; - the elimination after the merger of each participating partnership of its limited partners' tax preparation costs relating to partnership tax information; - the belief that the price offered by Pioneer Parent is a competitive price because of: - the commodity pricing used in determining the merger value for each partnership; - Pioneer USA's position as operator of most of each partnership's wells; and - Pioneer USA's significant ownership of nearby properties; - the fairness opinion from Stanger. FAIRNESS OPINION OF FINANCIAL ADVISOR (SEE PAGE 37) Stanger has issued a fairness opinion dated August 20, 2001, that, subject to the qualifications expressed in the opinion, the merger value for each partnership and the allocation of the merger value of the partnership (1) to 8 21 the limited partners of the partnership as a group, (2) to the general partners of the partnership as a group, (3) to Pioneer USA as the managing or sole general partner of the partnership, (4) to the unaffiliated limited partners of the partnership as a group and (5) to the unaffiliated limited partners of the nonmanaging general partner, if any, of the partnership as a group, is fair to the unaffiliated limited partners of the partnership and the unaffiliated limited partners of the nonmanaging general partner, if any, of the partnership, from a financial point of view. The full text of the written opinion of Stanger is attached to this document as Appendix D. You should read all of it carefully. THE OPINION OF STANGER IS DIRECTED TO OUR BOARD OF DIRECTORS. IT IS NOT A RECOMMENDATION TO YOU ABOUT HOW YOU SHOULD VOTE ON MATTERS RELATING TO THE PROPOSED MERGER OF ANY PARTNERSHIP IN WHICH YOU OWN AN INTEREST. MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 54) You will generally recognize gain or loss equal to the difference between (1) the value of the Pioneer Parent common stock you receive in the merger of each partnership in which you own interests and (2) your adjusted tax basis in your partnership interests in that participating partnership. Your gain or loss will be capital or ordinary depending on the nature of the assets held by each participating partnership in which you own an interest and the amount of depletion and intangible drilling and development costs that must be recaptured. You must calculate your ordinary and capital gain or loss separately for each partnership in which you own an interest. TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES TO YOU OF EACH MERGER OF A PARTNERSHIP IN WHICH YOU OWN AN INTEREST WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO SEEK TAX ADVICE FOR A FULL UNDERSTANDING OF THE PARTICULAR TAX CONSEQUENCES OF EACH MERGER TO YOU. CERTIFICATION OF NON-FOREIGN STATUS YOUR CERTIFICATE THAT YOU ARE NOT A FOREIGN PERSON, WHICH WE CALL A CERTIFICATION OF NON-FOREIGN STATUS, IS IMPORTANT. Whether or not you plan to vote on the merger of each partnership in which you own an interest, please take the time to complete and return to us the enclosed certification of non-foreign status. If we receive a properly completed certification of non-foreign status from you, we will not withhold federal income taxes on the Pioneer Parent common stock to be issued to you upon the merger of each partnership in which you own an interest. If we, on behalf of a partnership, are required to withhold federal income taxes from the Pioneer Parent common stock to be issued to you upon the merger of each partnership in which you own an interest, we will be entitled to deduct and withhold such taxes from the Pioneer Parent common stock otherwise payable to you. If amounts are withheld, we may, in our sole discretion: - sell any Pioneer Parent common stock withheld from you and use the sale proceeds to pay the required withholding taxes; - hold any Pioneer Parent common stock withheld from you as security until you satisfy the required withholding taxes, at which time the withheld Pioneer Parent common stock will be released to you; or - take such other reasonable action, at your expense, as is required or appropriate to satisfy the required withholding taxes. Any amounts withheld as described above will be treated as having been paid to you. RECORD DATE; VOTING POWER You may vote at the special meeting for each partnership in which you own an interest if you owned partnership interests of record as of the close of business on September 21, 2001. We call this date the record date. For each partnership in which you own a partnership interest, you may cast one vote representing your percentage of partnership interests in that partnership. The percentage of partnership interests that you own is determined by comparing the amount of: - your, or your predecessor's, initial investment, including any additional assessments, in the partnership; to - the total investment of all partners, including any additional assessments, in the partnership. YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special meeting for each partnership in which you own an interest, please take the time to vote by completing and mailing to us the enclosed proxy card. This will not prevent you from revoking your proxy at any time prior to the special meeting for each partnership in which you own an interest or from voting your partnership interests in person if you later choose to attend the special meeting for each partnership in which you own an interest. PARTNER VOTE REQUIRED TO APPROVE THE MERGERS The favorable vote of the holders of a majority of the limited partnership interests in a partnership is required to approve the merger proposals for that partnership, except that Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P. each require the favorable vote of the holders, 9 22 other than Pioneer USA, of 66 2/3% of its limited partnership interests to approve the merger proposals. We are generally entitled under the partnership agreements to vote partnership interests we hold as limited partners at the special meeting for each partnership in which we hold an interest. See "The Special Meetings -- Record Date; Voting Rights and Proxies" on page 66 of this document. We plan to vote all our partnership interests for the merger proposals. The voting interest that we hold in each partnership is found in Table 6 of Appendix A. Except as set forth above and in "Ownership of Partnership Interests" on page 71 of this document, none of Pioneer Parent, Pioneer USA, or, to the knowledge of Pioneer USA, any of their directors or executive officers, or any associate or subsidiary of Pioneer Parent, Pioneer USA or any such director or officer, beneficially owns any partnership interests of any partnership or is otherwise entitled to vote any partnership interests. If limited partners of a partnership approve the merger agreement, but do not approve the merger amendment, or vice versa, the partnership will not be able to merge. LIMITED PARTNERS WHO WANT THEIR PARTNERSHIP TO PARTICIPATE IN THE MERGER SHOULD VOTE FOR EACH OF THE MERGER PROPOSALS. CONDITIONS TO EACH MERGER (SEE PAGE 62) We will complete the merger of each partnership only if the conditions of the merger agreement are satisfied or, if permitted, waived. These conditions include: - the limited partners' adoption and approval of the merger proposals; - the absence of any law or court order that prohibits the merger; and - the absence of any lawsuit challenging the legality or any aspect of the merger. So long as the law allows us to do so, Pioneer Parent and we may choose to complete a merger of any partnership even though a condition has not been satisfied if the limited partners have approved the merger proposals. Pioneer Parent and we may complete the merger of any one or some of the partnerships for which the listed conditions have been satisfied, even if limited partners in other partnerships do not approve the merger proposals. If we choose to waive a material condition to a merger, we will disclose that waiver to the limited partners of the affected partnership and resolicit proxies for that merger. TERMINATION OF THE MERGER OF A PARTNERSHIP (SEE PAGE 63) Pioneer Parent and Pioneer USA may jointly terminate the merger agreement, for any or all of the partnerships, at any time, even after limited partner approval. Either Pioneer Parent or Pioneer USA may terminate the merger agreement for any or all of the partnerships in some circumstances, including the following: - the limited partners of a partnership fail to approve that partnership's merger; or - if any of the other parties is in material breach of the merger agreement. In addition, (1) Pioneer USA may terminate the merger agreement for any partnership, if Pioneer USA determines that termination of the merger agreement is required for its board of directors to comply with its fiduciary duties and (2) Pioneer Parent may abandon the proposed merger of any or all of the partnerships at any time prior to the special meeting for any such partnership for any reason including changes in, among other things, the price of Pioneer Parent common stock, the market prices for oil and gas generally or the oil and gas industry generally. EFFECT OF DEBT OWED BY A LIMITED PARTNER TO PIONEER USA ON AMOUNT OF PIONEER PARENT COMMON STOCK TO BE RECEIVED BY THE LIMITED PARTNER If a limited partner is indebted to Pioneer USA for any portion of the limited partner's original investment in the partnership, Pioneer USA plans to apply the Pioneer Parent common stock that would otherwise be distributed to the limited partner upon completion of the merger of the partnership against that limited partner's indebtedness. If a limited partner's indebtedness to Pioneer USA is less than the merger value allocated to limited partnership interests held by the limited partner, the limited partner will receive Pioneer Parent common stock equal to the amount by which such merger value exceeds such indebtedness. If a limited partner's indebtedness to Pioneer USA is greater than the merger value allocated to the limited partnership interests held by the limited partner, Pioneer USA may collect the deficiency from the limited partner. EFFECTS OF THE MERGER OF A PARTNERSHIP ON ITS LIMITED PARTNERS WHO DO NOT VOTE IN FAVOR OF THE MERGER You will be bound by the merger of a partnership in which you own interests if the limited partners in your partnership vote a majority, or 66 2/3% for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., of their 10 23 partnership interests in favor of the merger, even if you vote against the merger. If the merger of your partnership occurs, you will be entitled to receive only an amount of Pioneer Parent common stock based on the merger value for your partnership interests. You will not have appraisal, dissenters' or similar rights in connection with the merger, even if you vote against the merger. FUTURE OF A PARTNERSHIP THAT DOES NOT PARTICIPATE IN THE MERGER (SEE PAGE 57) If your partnership does not participate in the merger of that partnership for any reason, that partnership will remain in existence. Some reasons your partnership might not participate in the merger are (1) that the limited partners vote against the merger, (2) that a condition in the merger agreement is not satisfied, or (3) that Pioneer Parent or we exercise a termination right with respect to the merger for that partnership. At about the same time that we mail certificates representing shares of Pioneer Parent common stock to the partners of each participating partnership in payment of the merger value for that partnership, we will mail any cash distributions that were delayed for administrative purposes prior to the completion of the merger of each participating partnership to the partners of each nonparticipating partnership. We have not formulated an alternative business plan for any nonparticipating partnership. The business objectives of each nonparticipating partnership will continue as they are. We plan to continue to manage each nonparticipating partnership and operate it in accordance with the terms of its current partnership agreement. Each nonparticipating partnership will continue to operate as a separate legal entity with its own assets and liabilities. Distributions from any nonparticipating partnership are expected to continue to decline since its production revenues are expected to continue to decline more quickly than its production costs. Regardless of whether any nonparticipating partnership distributes cash, limited partners must continue to include their share of partnership income and loss in their individual tax returns. The board of directors of each of Pioneer Parent and Pioneer USA will decide what, if any, actions Pioneer Parent or Pioneer USA, respectively, will take regarding any nonparticipating partnership. Potential activities might include a tender offer for partnership interests of limited partners or a proposal to acquire the assets of, or merge with, one or more of the nonparticipating partnerships. The proposal may be on terms similar to or different from those of the mergers described in this document. EXPENSES AND FEES The expenses and fees to be incurred in connection with the merger of each partnership are expected to be approximately $2.0 million in total. Each participating partnership will pay its pro rata share, based on its reserve value, of those estimated expenses and fees. Pioneer Parent will pay the pro rata share of each nonparticipating partnership's estimated expenses and fees. Pioneer Parent has also agreed to pay any expenses and fees actually incurred in excess of $2.0 million and if Pioneer Parent terminates or abandons the merger as to any partnership, any expenses or fees allocated to that partnership. Pioneer Parent and Pioneer USA have reduced each partnership's merger value by that partnership's pro rata share of the estimated expenses and fees. REGULATORY REQUIREMENTS No federal or state regulatory requirements must be satisfied or approvals obtained in connection with the merger of any of the partnerships as described in this document, except filing certificates of merger with the Secretary of State of the State of Delaware and the Secretary of State of the State of Texas. SIMILAR TRANSACTIONS During March 2001, Pioneer Parent offered to acquire all of the direct oil and gas interests owned by some former officers and employees of Pioneer Parent and Pioneer USA in properties in which Pioneer Parent and Pioneer USA own interests. The merger value for the direct oil and gas interests was equal to the present value of estimated future net revenues from the oil and gas reserves attributable to the interests, as of March 31, 2001. In determining the present value, Pioneer Parent and Pioneer USA used (1) a five-year NYMEX futures price for oil and gas as of March 19, 2001 with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 13.5% discount rate. The consideration offered in the purchases of the direct oil and gas interests was all cash since offering and registering Pioneer Parent common stock in those purchases was cost-prohibitive due to the small size of such transactions. Additionally, in December 2000, Pioneer Parent received the approval of the partners of 13 employee limited partnerships to merge with Pioneer USA for total merger consideration of $2.0 million. Of the total merger consideration, $0.3 million was paid to current Pioneer Parent employees. The merger value of each employee partnership was equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil 11 24 and gas reserves and its net working capital, in each case as of September 30, 2000, less the cash distributions on October 15, 2000 and November 15, 2000, by that partnership to its partners. In determining the present value, Pioneer Parent and Pioneer USA used (1) a five-year NYMEX futures price for oil and gas as of August 25, 2000 with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 13.5% discount rate. The consideration paid in the mergers of the employee limited partnerships was all cash. Using the same parameters as described above, Pioneer Parent purchased all of the direct oil and gas interests held by Scott D. Sheffield, its chairman of the board of directors and chief executive officer, for $0.2 million during October 2000. As with the purchases of the direct oil and gas interests described above, offering and registering Pioneer Parent common stock in those mergers was cost-prohibitive due to the small size of such transactions. In each of the transactions referred to above Pioneer Parent paid all of the expenses of acquiring the direct oil and gas interests and of merging the employee limited partnerships into Pioneer USA. This is because of the small size of the transactions and the absence of significant external costs to the transactions. In the proposed transaction Pioneer Parent will pay the pro rata share of each nonparticipating partnership's estimated expenses and fees. The participating partnerships will pay their pro rata share of the expenses and fees. THIRD PARTY OFFERS (SEE PAGE 58) We will consider any offers from third parties to purchase any partnership or its assets. Those who wish to make an offer for any partnership or its assets must demonstrate to our reasonable satisfaction their financial ability and willingness to complete such a transaction. Before reviewing non-public information about a partnership, a third party will need to enter into a customary confidentiality agreement. Offers should be at prices and on terms that are fair to the partners of the partnership and more favorable to the unaffiliated limited partners than the prices and terms proposed in the merger for that partnership described in this document. Pioneer Parent has the right to match or top any such offer. In addition, any such offer would be subject to our right to continue operation of the properties. Since first announcing our willingness to consider third party offers in September 1999, we have not received any third party offer for any partnership or its assets. Other than announcing that we will consider third party offers for any partnership or its assets, we have not actively solicited bids from third parties. COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 69) On April 16, 2001, the last full trading day before the public announcement of the proposed merger of each partnership, Pioneer Parent common stock closed at $17.27 per share. On September 20, 2001, Pioneer Parent common stock closed at $15.89 per share. No liquid market exists for interests in any of the partnerships. See Table 15 of Appendix A for historical information about recent trades per $1,000 initial limited partner investment in each partnership and Table 7 of Appendix A for the average historical quarterly cash distributions per $1,000 initial limited partner investment for each partnership. 12 25 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF PIONEER PARENT The following table sets forth summary financial information of Pioneer Parent for the six months ended June 30, 2001 and 2000 and each of the five years in the period ended December 31, 2000. This financial information was derived from the consolidated financial statements of Pioneer Parent. This data should be read in conjunction with the consolidated financial statements of Pioneer Parent and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the reports incorporated by reference in this document.
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ------------------- ----------------------------------------------------- 2001 2000 2000 1999 1998 1997(a) 1996 -------- -------- -------- -------- -------- --------- -------- (UNAUDITED) (IN MILLIONS EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Oil and gas..................................... $ 476.6 $ 372.3 $ 852.7 $ 644.6 $ 711.5 $ 536.8 $ 396.9 Natural gas processing.......................... -- -- -- -- -- -- 23.8 Interest and other(b)........................... 16.1 8.9 25.8 89.7 10.4 4.3 17.5 Gain (loss) on disposition of assets, net....... 8.8 3.6 34.2 (24.2) (.4) 4.9 97.1 -------- -------- -------- -------- -------- --------- -------- 501.5 384.8 912.7 710.1 721.5 546.0 535.3 -------- -------- -------- -------- -------- --------- -------- Costs and expenses: Oil and gas production.......................... 107.8 86.3 189.3 159.5 223.5 144.2 110.3 Natural gas processing.......................... -- -- -- -- -- -- 12.5 Depletion, depreciation and amortization........ 109.6 105.5 214.9 236.1 337.3 212.4 112.1 Impairment of properties and facilities......... -- -- -- 17.9 459.5 1,356.4 -- Exploration and abandonments.................... 69.4 40.8 87.5 66.0 121.9 77.2 23.0 General and administrative...................... 18.4 16.7 33.3 40.2 73.0 48.8 28.4 Reorganization.................................. -- -- -- 8.5 33.2 -- -- Interest........................................ 69.9 81.6 162.0 170.3 164.3 77.5 46.2 Other(c)........................................ 27.1 44.8 67.2 34.7 39.6 7.1 2.5 -------- -------- -------- -------- -------- --------- -------- 402.2 375.7 754.2 733.2 1,452.3 1,923.6 335.0 -------- -------- -------- -------- -------- --------- -------- Income (loss) before income taxes and extraordinary item............................ 99.3 9.1 158.5 (23.1) (730.8) (1,377.6) 200.3 Income tax benefit (provision).................. (3.0) 1.9 6.0 .6 (15.6) 500.3 (60.1) -------- -------- -------- -------- -------- --------- -------- Income (loss) before extraordinary item......... 96.3 11.0 164.5 (22.5) (746.4) (877.3) 140.2 Extraordinary item.............................. -- (12.3) (12.3) -- -- (13.4) -- -------- -------- -------- -------- -------- --------- -------- Net income (loss)............................... $ 96.3 $ (1.3) $ 152.2 $ (22.5) $ (746.4) $ (890.7) $ 140.2 ======== ======== ======== ======== ======== ========= ======== Income (loss) before extraordinary item per share: Basic......................................... $ .98 $ .11 $ 1.65 $ (.22) $ (7.46) $ (16.88) $ 3.95 ======== ======== ======== ======== ======== ========= ======== Diluted....................................... $ .97 $ .11 $ 1.65 $ (.22) $ (7.46) $ (16.88) $ 3.47 ======== ======== ======== ======== ======== ========= ======== Net income (loss) per share: Basic......................................... $ .98 $ (.01) $ 1.53 $ (.22) $ (7.46) $ (17.14) $ 3.95 ======== ======== ======== ======== ======== ========= ======== Diluted....................................... $ .97 $ (.01) $ 1.53 $ (.22) $ (7.46) $ (17.14) $ 3.47 ======== ======== ======== ======== ======== ========= ======== Dividends per share............................. -- $ -- $ -- $ -- $ .10 $ .10 $ .10 ======== ======== ======== ======== ======== ========= ======== Weighted average basic shares outstanding....... 98.4 99.9 99.4 100.3 100.1 52.0 35.5 STATEMENT OF CASH FLOWS DATA: Cash flows from operating activities.............. $ 267.1 $ 169.4 $ 430.1 $ 255.2 $ 314.1 $ 228.2 $ 230.1 Cash flows from (used in) investing activities...................................... $ (227.5) $ (82.9) $ (194.5) $ 199.0 $ (517.0) $ (341.2) $ 13.7 Cash flows from (used in) financing activities...................................... $ (47.4) $ (82.9) $ (244.1) $ (479.1) $ 190.9 $ 166.0 $ (245.4) BALANCE SHEET DATA (AT PERIOD END): Working capital (deficit)(d)...................... $ (45.5) $ (29.7) $ (25.1) $ (13.7) $ (324.8) $ 46.6 $ 26.1 Property, plant and equipment, net................ $2,607.3 $2,485.9 $2,515.0 $2,503.0 $3,034.1 $ 3,515.8 $1,040.4 Total assets...................................... $3,062.1 $2,933.2 $2,954.4 $2,929.5 $3,481.3 $ 4,153.0 $1,199.9 Long-term obligations............................. $1,751.9 $1,872.1 $1,804.5 $1,914.5 $2,101.2 $ 2,124.0 $ 329.0 Preferred stock of subsidiary..................... $ -- $ -- $ -- $ -- $ -- $ -- $ 188.8 Total stockholders' equity(e)..................... $1,039.0 $ 805.8 $ 904.9 $ 774.6 $ 789.1 $ 1,548.8 $ 530.3
--------------- (a) Includes amounts relating to the acquisition of MESA Inc. and Chauvco Resources Ltd. in August and December 1997, respectively. 13 26 (b) The six month period ended June 30, 2001 includes non-cash mark-to-market gains for changes in the fair values of non-hedge financial instruments of $7.3 million. 1999 includes $41.8 million of option fees and liquidated damages related to an unsuccessful asset sale and $30.2 million of income associated with an excise tax refund. (c) The six month periods ended June 30, 2001 and 2000 and the years ended December 31, 2000, 1999, 1998 and 1997 include non-cash mark-to-market charges for changes in the fair values of non-hedge financial instruments of $6.6 million, $42.0 million, $58.5 million, $27.0 million, $21.2 million and $5.2 million, respectively. (d) The 1998 working capital deficit includes $306.5 million of current maturities of long-term debt. (e) On January 1, 2001, Pioneer Parent adopted the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." In accordance with those provisions, as of June 30, 2001, deferred hedge gains and losses have increased Pioneer Parent's stockholders' equity by $49.4 million. SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF PIONEER PARENT The following table sets forth summary unaudited pro forma combined financial data of Pioneer Parent that is presented to give effect to the merger of each of the partnerships. The information was prepared based on the following assumptions: - The merger of each partnership will be accounted for as a purchase business combination under generally accepted accounting principles. - The income statement data is presented as if the merger of each partnership had been consummated on January 1, 2000. - The balance sheet data is presented as if the merger of each partnership had been consummated on June 30, 2001. You should consider the following: - The unaudited pro forma combined financial data are not necessarily indicative of the results of operations or the financial position of Pioneer Parent that would have occurred had the merger of each partnership in which you own an interest been consummated on January 1, 2000, nor are they necessarily indicative of future results of operations or financial position of Pioneer Parent. - The unaudited pro forma combined revenue and expense data exclude the cost savings expected to be realized through the consolidation of operations of Pioneer Parent and each partnership and the elimination of duplicate expenses. The unaudited pro forma combined financial statements should be read together with (1) the historical consolidated financial statements of Pioneer Parent incorporated by reference in this document, (2) the historical financial statements of each partnership contained in the supplement to this document for the partnership, and (3) the unaudited pro forma combined financial statements contained elsewhere in this document. With respect to future cash distributions, see 14 27 "Questions and Answers About the Merger of Each Partnership -- What Happens to My Future Cash Distributions?" See also "Where You Can Find More Information" on the inside front cover page of this document.
PRO FORMA PRO FORMA SIX MONTHS ENDED YEAR ENDED JUNE 30, 2001 DECEMBER 31, 2000 ---------------- ----------------- (IN THOUSANDS EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS: Revenues: Oil and gas............................................ $ 500,185 $901,382 Interest and other..................................... 16,305 26,231 Gain on disposition of assets, net..................... 8,943 34,425 ---------- -------- 525,433 962,038 ---------- -------- Costs and Expenses: Oil and gas production................................. 115,003 202,176 Depletion, depreciation and amortization............... 112,909 221,942 Exploration and abandonments........................... 69,585 87,619 General and administrative............................. 22,483 40,406 Interest............................................... 69,876 161,952 Other.................................................. 27,091 67,231 ---------- -------- 416,947 781,326 ---------- -------- Income from continuing operations before income taxes..... 108,486 180,712 Income tax benefit (provision)............................ (3,008) 6,000 ---------- -------- Income from continuing operations......................... $ 105,478 $186,712 ========== ======== Income from continuing operations per common share, basic.................................................. $ 1.01 $ 1.77 Income from continuing operations per common share, diluted................................................ $ 1.00 $ 1.77 Weighted average number of shares outstanding, basic...... 104,306 105,326 Weighted average number of shares outstanding, diluted.... 105,657 105,710 BALANCE SHEET DATA (AT PERIOD END): Property, plant and equipment, net........................ $2,703,942 Total assets.............................................. $3,169,166 Long-term debt............................................ $1,572,227 Stockholders' equity...................................... $1,146,065
15 28 SUMMARY OIL AND GAS RESERVE INFORMATION The following table sets forth summary information on Pioneer Parent's and the combined partnerships' proved oil and gas reserves at December 31, 2000, and the summary pro forma combined information of Pioneer Parent on proved oil and gas reserves assuming the merger of each partnership had taken place on December 31, 2000. Pioneer Parent's and the combined partnerships' historical and Pioneer Parent's pro forma combined proved oil and gas reserve information set forth below and incorporated by reference in this document are only estimates based primarily on reports prepared by Pioneer Parent's engineers for Pioneer Parent's proved reserves and independent petroleum engineers for the combined partnerships' proved reserves as of December 31, 2000. The reserve information as of December 31, 2000 is based on the prices of oil and gas as of that time. The discounted future net cash flows set forth or incorporated by reference in this document should not be considered as the current market value of the estimated oil and gas reserves attributable to Pioneer Parent's, the combined partnerships' or any partnership's properties. Under the applicable requirements of the Securities and Exchange Commission, the estimated discounted future net cash flows from proved reserves are based on prices and costs as of the date of the estimate, while actual future prices and costs may be materially higher or lower. SUMMARY HISTORICAL AND PRO FORMA OIL AND GAS RESERVE INFORMATION AT DECEMBER 31, 2000
OIL AND NATURAL BARRELS OF NGLS GAS EQUIVALENTS (MMBbls) (Bcf) (MMBOE) -------- ------- ----------- NET PROVED RESERVES (HISTORICAL): PIONEER PARENT: Developed.............................................. 232.5 1,507.8 483.8 Undeveloped............................................ 79.8 387.7 144.4 ----- ------- ------- Total............................................. 312.3 1,895.5 628.2 ===== ======= ======= COMBINED PARTNERSHIPS: Developed.............................................. 27.3 37.6 33.6 Undeveloped............................................ -- .3 .1 ----- ------- ------- Total............................................. 27.3 37.9 33.7 ===== ======= ======= NET PROVED RESERVES (PRO FORMA COMBINED): Developed.............................................. 261.8 1,546.8 519.6 Undeveloped............................................ 79.8 388.0 144.5 ----- ------- ------- Total............................................. 341.6 1,934.8 664.1 ===== ======= ======= RESERVE VALUATION INFORMATION (IN MILLIONS): PIONEER PARENT: Estimated future net cash flows........................ $10,864 Standardized measure of discounted future net cash flows................................................. $ 5,646 COMBINED PARTNERSHIPS: Estimated future net cash flows........................ $ 424 Standardized measure of discounted future net cash flows(1).............................................. $ 207 PRO FORMA COMBINED: Estimated future net cash flows........................ $11,267 Standardized measure of discounted future net cash flows................................................. $ 5,838
--------------- (1) The combined partnerships do not reflect a federal income tax provision since the partners of each partnership include the income of the partnership in their respective individual federal income tax returns. 16 29 COMPARATIVE PER SHARE DATA The following table summarizes the per share information for Pioneer Parent and the per $1,000 limited partner investment for the combined partnerships on a historical, equivalent pro forma combined and pro forma combined basis. The pro forma information gives effect to the merger of each partnership accounted for by Pioneer Parent as a purchase business combination. You should read this information together with the historical financial statements (1) included in the annual reports on Form 10-K and other information that Pioneer Parent has filed with the Securities and Exchange Commission and (2) included in the supplement to this document for each partnership. See "Where You Can Find More Information" on the inside front cover page of this document. With respect to future cash distributions, see "Questions and Answers About the Merger of Each Partnership -- What Happens to My Future Cash Distributions?" and "Risk Factors -- Pioneer Parent Might Not Declare Dividends." You should not rely on the pro forma combined information as being indicative of the results that would have occurred had the merger of each partnership been completed on January 1, 2000, or the future results that Pioneer Parent will experience after the merger of each partnership. In addition, because Pioneer Parent has both a different legal structure and purpose from each partnership, the information about Pioneer Parent and the information about the combined partnerships are not necessarily comparable.
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2001 2000 ---------------- ------------ HISTORICAL -- PIONEER PARENT: Income from continuing operations per share: Basic.................................................. $ .98 $1.65 Diluted................................................ .97 1.65 Book value per share...................................... 10.55 9.19 Cash dividends per common share........................... 0.00 0.00 PRO FORMA COMBINED -- PIONEER PARENT: Income from continuing operations per share: Basic.................................................. $ 1.01 $1.77 Diluted................................................ 1.00 1.77 Book value per share...................................... 10.85
17 30 HISTORICAL -- COMBINED PARTNERSHIPS PER $1,000 LIMITED PARTNER INVESTMENT
INCOME BOOK VALUE CASH DISTRIBUTIONS ------------------------- ------------------------- ------------------------- SIX MONTHS SIX MONTHS SIX MONTHS ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, 2001 2000 2001 2000 2001 2000 ---------- ------------ ---------- ------------ ---------- ------------ Parker & Parsley 81-I, Ltd. .................. $11.62 $ 22.18 $ 25.01 $ 20.30 $14.34 $ 19.70 Parker & Parsley 81-II, Ltd. ................. 7.89 15.34 85.94 84.93 13.20 15.97 Parker & Parsley 82-I, Ltd. .................. 12.54 21.14 28.17 23.71 15.47 19.46 Parker & Parsley 82-II, Ltd. ................. 9.97 20.92 69.35 67.39 13.05 22.04 Parker & Parsley 82-III, Ltd. ................ 14.07 32.48 59.63 55.84 17.99 33.51 Parker & Parsley 83-A, Ltd. .................. 16.46 35.02 80.97 76.56 20.60 33.80 Parker & Parsley 83-B, Ltd. .................. 13.58 36.37 85.77 83.30 19.30 40.34 Parker & Parsley 84-A, Ltd. .................. 19.38 46.96 111.99 106.99 26.88 44.87 Parker & Parsley 85-A, Ltd. .................. 17.64 39.05 75.25 71.31 23.03 38.71 Parker & Parsley 85-B, Ltd. .................. 18.78 34.37 120.38 117.13 25.29 38.72 Parker & Parsley Private Investment 85-A, Ltd. ....................................... 25.53 52.21 155.76 148.95 35.34 68.91 Parker & Parsley Selected 85 Private Investment, Ltd. ........................... 28.01 46.47 120.03 110.65 35.48 46.75 Parker & Parsley 86-A, Ltd. .................. 15.10 47.65 54.68 58.31 28.35 45.66 Parker & Parsley 86-B, Ltd. .................. 23.94 53.69 134.43 128.81 31.57 53.67 Parker & Parsley 86-C, Ltd. .................. 22.50 42.45 104.90 98.36 30.33 42.52 Parker & Parsley Private Investment 86, Ltd. ....................................... 26.53 53.89 187.43 183.56 39.49 55.57 Parker & Parsley 87-A Conv., Ltd. ............ 24.48 49.70 120.97 113.34 31.89 53.51 Parker & Parsley 87-A Ltd. ................... 24.47 49.63 121.20 113.60 31.89 53.51 Parker & Parsley 87-B Conv., Ltd. ............ 16.42 46.65 138.24 138.95 29.98 49.02 Parker & Parsley 87-B, Ltd. .................. 16.42 46.62 138.40 139.11 29.98 49.02 Parker & Parsley Producing Properties 87-A, Ltd. ....................................... 28.57 48.76 97.65 90.89 41.73 50.66 Parker & Parsley Producing Properties 87-B, Ltd. ....................................... 32.04 91.38 140.92 136.41 46.92 96.14 Parker & Parsley Private Investment 87, Ltd. ....................................... 26.82 52.59 152.52 144.05 38.10 55.91 Parker & Parsley 88-A Conv., L.P. ............ 30.29 57.28 160.19 150.71 41.21 62.42 Parker & Parsley 88-A, L.P. .................. 30.31 57.35 160.73 151.23 41.21 62.42 Parker & Parsley 88-B Conv., L.P. ............ 36.61 89.12 152.48 144.77 47.53 86.90 Parker & Parsley 88-B, L.P. .................. 36.64 89.06 152.74 145.00 47.53 86.90 Parker & Parsley 88-C Conv., L.P. ............ 32.79 75.89 150.70 142.82 42.17 75.57 Parker & Parsley 88-C, L.P. .................. 32.66 75.74 148.52 140.76 42.17 75.57 Parker & Parsley Producing Properties 88-A, L.P. ....................................... 31.33 63.02 267.85 263.74 47.97 81.63 Parker & Parsley Private Investment 88, L.P. ....................................... 33.92 78.46 170.44 160.08 43.98 79.82 Parker & Parsley 89-A Conv., L.P. ............ 36.68 75.55 166.00 158.81 50.42 80.13 Parker & Parsley 89-A, L.P. .................. 36.47 75.48 166.58 159.61 50.42 80.13 Parker & Parsley 89-B Conv., L.P. ............ 33.17 68.01 177.67 171.00 45.58 74.44 Parker & Parsley 89-B, L.P. .................. 33.14 67.95 177.79 171.15 45.58 74.44 Parker & Parsley Private Investment 89, L.P. ....................................... 24.05 63.69 161.58 150.75 31.46 65.31 Parker & Parsley 90-A Conv., L.P. ............ 30.64 56.80 194.62 183.97 38.59 63.84 Parker & Parsley 90-A, L.P. .................. 30.60 56.79 195.17 184.56 38.59 63.84 Parker & Parsley 90-B Conv., L.P. ............ 34.01 65.53 166.60 156.33 44.07 69.36 Parker & Parsley 90-B, L.P. .................. 34.04 65.55 166.86 156.56 44.07 69.36 Parker & Parsley 90-C Conv., L.P. ............ 27.83 66.98 139.39 132.75 36.41 65.37 Parker & Parsley 90-C, L.P. .................. 27.82 66.95 138.59 131.96 36.40 65.37 Parker & Parsley Private Investment 90, L.P. ....................................... 34.12 74.42 163.59 156.96 47.93 78.54 Parker & Parsley 90 Spraberry Private Dev., L.P. ....................................... 38.77 65.85 160.21 141.88 42.84 58.64 Parker & Parsley 91-A, L.P. .................. 41.11 95.06 220.44 206.61 53.70 100.03 Parker & Parsley 91-B, L.P. .................. 34.74 119.17 170.62 160.69 50.09 117.75
18 31 EQUIVALENT PRO FORMA COMBINED PARTNERSHIPS PER $1,000 LIMITED PARTNER INVESTMENT ON AN EQUIVALENT PER SHARE BASIS(1)
ESTIMATED NUMBER OF SIX MONTHS YEAR ENDED SHARES OF ENDED DECEMBER 31, PIONEER JUNE 30, 2001 2000 BOOK VALUE COMMON ---------------- ---------------- JUNE 30, STOCK OFFERED BASIC DILUTED BASIC DILUTED 2001 ------------- ------ ------- ------ ------- ---------- Parker & Parsley 81-I, Ltd. ................................ $ 5.21 $ 5.26 $ 5.21 $ 9.22 $ 9.22 $ 56.53 Parker & Parsley 81-II, Ltd. ............................... 4.57 4.61 4.57 8.08 8.08 49.55 Parker & Parsley 82-I, Ltd. ................................ 4.63 4.68 4.63 8.19 8.19 50.22 Parker & Parsley 82-II, Ltd. ............................... 5.74 5.80 5.74 10.16 10.16 62.25 Parker & Parsley 82-III, Ltd. .............................. 6.76 6.83 6.76 11.97 11.97 73.37 Parker & Parsley 83-A, Ltd. ................................ 7.90 7.98 7.90 13.98 13.98 85.70 Parker & Parsley 83-B, Ltd. ................................ 8.88 8.97 8.88 15.72 15.72 96.36 Parker & Parsley 84-A, Ltd. ................................ 11.06 11.17 11.06 19.57 19.57 119.99 Parker & Parsley 85-A, Ltd. ................................ 7.66 7.74 7.66 13.56 13.56 83.13 Parker & Parsley 85-B, Ltd. ................................ 8.09 8.18 8.09 14.33 14.33 87.83 Parker & Parsley Private Investment 85-A, Ltd. ............. 15.60 15.75 15.60 27.61 27.61 169.24 Parker & Parsley Selected 85 Private Investment, Ltd. ...... 12.36 12.48 12.36 21.87 21.87 134.08 Parker & Parsley 86-A, Ltd. ................................ 9.45 9.54 9.45 16.72 16.72 102.50 Parker & Parsley 86-B, Ltd. ................................ 12.80 12.93 12.80 22.65 22.65 138.87 Parker & Parsley 86-C, Ltd. ................................ 9.19 9.28 9.19 16.26 16.26 99.68 Parker & Parsley Private Investment 86, Ltd. ............... 15.00 15.15 15.00 26.54 26.54 162.72 Parker & Parsley 87-A Conv., Ltd. .......................... 11.12 11.23 11.12 19.69 19.69 120.68 Parker & Parsley 87-A, Ltd. ................................ 11.08 11.20 11.08 19.62 19.62 120.27 Parker & Parsley 87-B Conv., Ltd. .......................... 11.54 11.66 11.54 20.43 20.43 125.22 Parker & Parsley 87-B, Ltd. ................................ 11.55 11.66 11.55 20.44 20.44 125.29 Parker & Parsley Producing Properties 87-A, Ltd. ........... 11.82 11.94 11.82 20.92 20.92 128.24 Parker & Parsley Producing Properties 87-B, Ltd. ........... 21.27 21.49 21.27 37.66 37.66 230.83 Parker & Parsley Private Investment 87, Ltd. ............... 13.78 13.92 13.78 24.39 24.39 149.54 Parker & Parsley 88-A Conv., L.P. .......................... 13.70 13.84 13.70 24.25 24.25 148.63 Parker & Parsley 88-A, L.P. ................................ 13.73 13.87 13.73 24.30 24.30 148.96 Parker & Parsley 88-B Conv., L.P. .......................... 18.95 19.14 18.95 33.54 33.54 205.58 Parker & Parsley 88-B, L.P. ................................ 18.96 19.15 18.96 33.56 33.56 205.69 Parker & Parsley 88-C Conv., L.P. .......................... 16.27 16.44 16.27 28.80 28.80 176.56 Parker & Parsley 88-C, L.P. ................................ 16.17 16.33 16.17 28.62 28.62 175.43 Parker & Parsley Producing Properties 88-A, L.P. ........... 20.47 20.68 20.47 36.24 36.24 222.14 Parker & Parsley Private Investment 88, L.P. ............... 19.54 19.74 19.54 34.59 34.59 212.03 Parker & Parsley 89-A Conv., L.P. .......................... 18.45 18.63 18.45 32.66 32.66 200.18 Parker & Parsley 89-A, L.P. ................................ 18.48 18.67 18.48 32.71 32.71 200.52 Parker & Parsley 89-B Conv., L.P. .......................... 15.56 15.72 15.56 27.55 27.55 168.87 Parker & Parsley 89-B, L.P. ................................ 15.54 15.70 15.54 27.51 27.51 168.65 Parker & Parsley Private Investment 89, L.P. ............... 15.81 15.97 15.81 27.99 27.99 171.59 Parker & Parsley 90-A Conv., L.P. .......................... 13.83 13.96 13.83 24.47 24.47 150.00 Parker & Parsley 90-A, L.P. ................................ 13.86 14.00 13.86 24.53 24.53 150.37 Parker & Parsley 90-B Conv., L.P. .......................... 15.14 15.29 15.14 26.80 26.80 164.29 Parker & Parsley 90-B, L.P. ................................ 15.17 15.32 15.17 26.86 26.86 164.62 Parker & Parsley 90-C Conv., L.P. .......................... 13.76 13.90 13.76 24.36 24.36 149.34 Parker & Parsley 90-C, L.P. ................................ 13.72 13.86 13.72 24.29 24.29 148.91 Parker & Parsley Private Investment 90, L.P. ............... 17.11 17.28 17.11 30.28 30.28 185.64 Parker & Parsley 90 Spraberry Private Dev., L.P. ........... 17.27 17.45 17.27 30.57 30.57 187.41 Parker & Parsley 91-A, L.P. ................................ 22.39 22.62 22.39 39.63 39.63 242.95 Parker & Parsley 91-B, L.P. ................................ 24.73 24.98 24.73 43.77 43.77 268.30
--------------- (1) Represents the "Pro Forma Combined -- Pioneer Parent" amounts multiplied by the estimated number of shares of Pioneer Parent common stock to be received per $1,000 limited partner investment for each Partnership. 19 32 RISK FACTORS You should carefully consider the following risk factors in determining whether to vote to approve the merger proposals for each partnership in which you own interests. RISK FACTORS RELATING TO THE MERGER OF EACH PARTNERSHIP THE MERGER VALUE FOR EACH PARTNERSHIP INVOLVES ESTIMATES THAT MAY VARY MATERIALLY FROM THE QUANTITIES OF OIL AND GAS ACTUALLY RECOVERED, AND CONSEQUENTLY FUTURE NET REVENUES MAY BE MATERIALLY DIFFERENT FROM THE ESTIMATES USED IN THE CALCULATION OF THE MERGER VALUE AND FOR A PARTICULAR PARTNERSHIP The calculations of each partnership's estimated reserves of crude oil, natural gas liquids and natural gas and future net revenues from those reserves included in this document are only estimates. Actual prices, production, operating expenses and quantities of recoverable oil and natural gas reserves may vary from those assumed in the estimates. Any significant variance from the assumptions used could result in the actual quantity of each partnership's reserves and future net revenues being materially different from the estimates used in the calculation of the merger value for that partnership. If this turns out to be the case, the merger value you will receive may not be a reflection of the actual value of the applicable partnership's reserves. THE MERGER VALUE FOR A PARTNERSHIP WILL NOT BE ADJUSTED FOR CHANGES IN OIL AND GAS PRICES BEFORE THE COMPLETION OF ITS MERGER The merger value for each partnership in which you own an interest determines the amount of Pioneer Parent common stock you will receive in the merger of that partnership. The merger value for each partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution mailed on July 13, 2001, by the partnership to its partners. Although oil and gas prices have fluctuated greatly in the recent past and may continue to do so, the merger value for a partnership will not be adjusted as of the closing date of the merger of that partnership to reflect any general changes in oil or gas prices, or any other matter generally affecting the oil and gas industry, occurring after March 31, 2001 and prior to the closing date of the merger. THE NUMBER OF SHARES OF PIONEER PARENT COMMON STOCK THE LIMITED PARTNERS OF EACH PARTNERSHIP WILL RECEIVE MAY DECREASE BETWEEN NOW AND THE COMPLETION OF THE MERGER OF THE PARTNERSHIP The number of shares of Pioneer Parent common stock to be issued to the limited partners of each partnership upon the merger of the partnership will be determined by dividing the merger value assigned to the partnership by the value of one share of Pioneer Parent common stock determined as described below. As discussed above, the merger value for each partnership will not be changed between now and the completion of the merger for the partnership. In addition, for purposes of example in this document, a share of Pioneer Parent common stock has been valued at an assumed average closing price of $18.00. However, the value of a share of Pioneer Parent common stock will be recalculated by computing the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date scheduled for the special meeting for each partnership. This recalculated value, and not the assumed closing average closing price of $18.00 per share of Pioneer Parent common stock used for illustration purposes in this document and on each limited partner's proxy card, will be used to determine the actual number of shares of Pioneer Parent common stock to be issued in the merger of each partnership. The recalculated value may be more or less than the assumed average closing price of $18.00 per share of Pioneer Parent common stock. If it is more than $18.00, you will receive fewer shares of Pioneer Parent common stock than the illustrations in this document show. For historical and current market prices of Pioneer Parent common stock, see "Comparative Per Share Market Price and Dividend Information" on page 69. CURRENT MARKET PRICES FOR OIL AND GAS MAY BE HIGHER THAN THE MERGER VALUE FOR A PARTNERSHIP, WHICH MAY AFFECT THE FAIRNESS OPINION Oil and gas prices have fluctuated greatly in the recent past and may continue to do so in the future. Pioneer Parent calculated each merger value based on oil and gas prices that it believes to be fair and that are supported by current market prices. Changes in current oil and gas prices may affect the willingness or ability of Stanger to update its opinion at the time this document is mailed to the limited partners of each partnership as to the fairness of the consideration to 20 33 be received by limited partners. If the prices used in the calculation of each merger value significantly differ from current prices and if Pioneer Parent does not modify its offer, the fairness opinion provider may be unable to update its opinion. YOU WERE NOT INDEPENDENTLY REPRESENTED IN ESTABLISHING THE TERMS OF THE MERGER OF EACH PARTNERSHIP Pioneer Parent and Pioneer USA determined the terms of the merger of each partnership, including the method for determining the merger value for that partnership, and the type and allocation among the partners of the consideration to be given in exchange for partnership interests. We did not seek recommendations about the type of transaction or the terms or prices from any independent underwriter, financial advisor or other securities professional prior to accepting the consideration Pioneer Parent offered. The only independent representatives in the mergers were Sayles, Lidji & Werbner, A Professional Corporation, which provided legal services to Pioneer USA's board of directors, Robert A. Stanger & Co., Inc., which rendered its fairness opinion to Pioneer USA's board of directors, and Stradley Ronon Stevens & Young, LLP and (as to Texas law matters) Arter & Hadden LLP, which rendered the legal opinion required under the partnership agreement for each partnership, other than Parker & Parsley Producing Properties 88-A, L.P. No representative group of limited partners and no outside experts or consultants, such as investment bankers, legal counsel, accountants or financial experts, were engaged solely to represent the independent interests of the limited partners of any partnership in structuring and negotiating the terms of the merger for the partnership. If you had been separately represented, the terms of the merger for a partnership in which you own interests might have been different and possibly more favorable to you. THE INTERESTS OF PIONEER PARENT, PIONEER USA AND THEIR DIRECTORS AND OFFICERS MAY DIFFER FROM YOUR INTERESTS The interests of Pioneer Parent, Pioneer USA, and their directors and officers may differ from your interests as a result of the relationships among them. For example, Pioneer USA, as general or managing partner of each partnership, has a duty to manage the partnership in the best interests of the limited partners. Additionally, Pioneer USA has a duty to operate its business for the benefit of its sole stockholder, Pioneer Parent. Also, the members of Pioneer USA's board of directors have duties to both the limited partners of each partnership and to Pioneer Parent. All of the members of Pioneer USA's board of directors are officers of Pioneer Parent and have duties to Pioneer Parent's stockholders. Pioneer USA's board of directors was aware of these interests and considered them in approving the merger proposals for each partnership. See "Interests of Pioneer Parent, Pioneer USA and Their Directors and Officers" on page 70 of this document. IT IS UNCLEAR WHAT THE MARKET DEMAND IS FOR ANY PARTNERSHIP OR ITS ASSETS OR THAT THE TERMS OF THE MERGER OF EACH PARTNERSHIP ARE AS FAVORABLE AS COULD BE OBTAINED IN A THIRD PARTY SALE In September 1999, we first announced our willingness to consider third party offers to purchase any partnership or its assets at prices that are higher than the 1999 merger value for the partnership, but subject to our right to continue operation of the properties. Other than announcing that we will consider third party offers for any partnership or its assets, we have not actively solicited bids from third parties. We believed this invitation for third party bids would result in a better price to the limited partners of each partnership than if we merely offered the partnership or its assets for sale at any price. Since that time, we have not received any third party offer for any partnership or its assets. As a result, we cannot be sure what the market demand is for any partnership or its assets, individually or as a whole with the other partnerships, or what a third party would offer for any partnership. Also, although we do not have any plans to sell or relinquish our operating rights in any third party sale, we cannot be sure what the market demand is for any partnership or its assets if we also sold or relinquished our operating rights. We cannot assure you that the terms of the merger of each partnership are as favorable as could be obtained from a sale of any partnership or its assets, individually or as a whole with the other partnerships, to an unrelated party. POTENTIAL LITIGATION CHALLENGING THE MERGER OF A PARTNERSHIP MAY DELAY OR BLOCK THE MERGER AND, AS A RESULT, YOUR RECEIPT OF THE PIONEER PARENT COMMON STOCK One or more of the partners opposed to the merger of a partnership in which such partner or partners own an interest may initiate legal action to stop the merger of the partnership or to seek damages for alleged violations of federal and state laws. Litigation challenging the merger of any partnership may delay or block the closing of the merger for one or more of the partnerships. In addition, if any lawsuits are filed, Pioneer Parent or Pioneer USA may decide to terminate one or more of the mergers. If the merger of a partnership in which you own an interest is delayed, blocked or terminated, we will delay or terminate the issuance of the Pioneer Parent common stock that you would otherwise receive. 21 34 REPURCHASE OFFERS IN 2001 BY EACH OF THE SIX PARTNERSHIPS WITH A REPURCHASE OBLIGATION WERE HIGHER THAN THE MERGER VALUE FOR THE PARTNERSHIP The limited partners of each of the partnerships listed below may require us to repurchase their partnership interests for cash at the times and under the conditions described in the partnership agreements for the partnership: Parker & Parsley 82-I, Ltd. Parker & Parsley 82-II, Ltd. Parker & Parsley 82-III, Ltd. Parker & Parsley 83-A, Ltd. Parker & Parsley 83-B, Ltd. Parker & Parsley 84-A, Ltd. The 2001 repurchase offers were commenced and completed before the date of this document. In each of the partnerships with a repurchase obligation, the repurchase price in 2001 is higher than the price being offered in the merger of the partnership. For a list of the repurchase prices in 2001 and the prior two years, see Table 8 of Appendix A. For a description of the mechanics of the repurchase rights, see "Special Factors -- Fairness Opinion -- Repurchase Offers" on page 43. In addition, if the limited partners of a partnership with repurchase rights vote a majority of their partnership interests in favor of the merger of the partnership, those repurchase rights will terminate on completion of the merger. As a result, if the oil and gas prices used in calculating the repurchase prices in the future were high enough to offset the additional 33 1/3% discount factor used in the repurchase calculation, the limited partners would not have the opportunity to require Pioneer USA to repurchase the limited partners' partnership interests for a price higher than the merger value for the partnership. YOU COULD BE BOUND BY THE MERGER OF EACH PARTNERSHIP IN WHICH YOU OWN AN INTEREST EVEN IF YOU DO NOT VOTE IN FAVOR OF THE MERGER You will be bound by the merger of each partnership in which you own an interest if the limited partners in the partnership vote a majority, or 66 2/3% for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., of their partnership interests in favor of the merger, even if you vote against the merger or do not vote. If the merger of the partnership occurs, you will be entitled to receive only an amount of Pioneer Parent common stock based on the merger value of your partnership interests in the partnership. Under the laws of the State of Delaware and the State of Texas, which are the states of formation of the partnerships, you are not entitled to appraisal or dissenters' rights with respect to the merger of any partnership. RISKS ASSOCIATED WITH AN INVESTMENT IN PIONEER PARENT LIMITED PARTNERS WHO BECOME PIONEER PARENT STOCKHOLDERS WILL OWN STOCK IN A CORPORATION RATHER THAN A LIMITED PARTNERSHIP INTEREST IN A LIMITED PARTNERSHIP, RESULTING IN A FUNDAMENTAL CHANGE IN THE NATURE OF THEIR INVESTMENTS Limited partners of a participating partnership will become stockholders of Pioneer Parent and will fundamentally change the nature of their investments. Each partnership, other than Parker & Parsley 81-I, Ltd., Parker & Parsley 81-II, Ltd., Parker & Parsley 82-I, Ltd., Parker & Parsley 82-II, Ltd., Parker & Parsley 82-III, Ltd., Parker & Parsley 83-A, Ltd., Parker & Parsley 83-B, Ltd. and Parker & Parsley 84-A, Ltd., was formed as a finite-life investment. The partners of each partnership receive regular cash distributions out of the partnership's net operating income and special distributions upon liquidation of the partnership's oil and gas assets. In contrast, Pioneer Parent intends to operate for an indefinite period of time and has no specific plans for the sale of its investments. Because Pioneer Parent will spend a portion of its cash flow on acquisitions, drilling and other activities, the activities of Pioneer Parent may involve higher levels of risk than those associated with the present or future operations of each partnership. Instead of having their investments liquidated through the liquidation of Pioneer Parent's assets, stockholders should expect to be able to liquidate their investment in Pioneer Parent only through the sale of their Pioneer Parent common stock in the market. The amount realized through the sale of shares of Pioneer Parent common stock may not be equal to the amount that would have been realized by stockholders through the sale of Pioneer Parent's assets. For a description of the differences between the terms of shares of Pioneer Parent common stock and partnership interests in each partnership, see "Comparison of Rights of Stockholders and Partners" on page 79. 22 35 LIMITED PARTNERS WHO BECOME PIONEER PARENT STOCKHOLDERS WILL OWN AN INVESTMENT THAT WILL BE SUBJECT TO THE MARKET RISKS ATTENDANT TO AN INVESTMENT IN A PUBLIC COMPANY Limited Partners who become Pioneer Parent stockholders will own an investment in a public company traded on the New York Stock Exchange and the Toronto Stock Exchange that does not currently pay a dividend, rather than an investment in a limited partnership with a limited trading market that pays regular cash distributions. Limited Partners who become Pioneer Parent stockholders will therefore be subject to the market risks attendant to an investment in a public company. An investment in Pioneer Parent common stock will fluctuate from time to time depending upon general market conditions, conditions in the oil and gas industry, and Pioneer Parent's future performance. In addition, there is the potential for decreased market prices for Pioneer Parent common stock in the near term if significant numbers of limited partners elect to sell their Pioneer Parent common stock following completion of the proposed mergers. PIONEER PARENT MIGHT NOT DECLARE DIVIDENDS Limited partners of a participating partnership will become stockholders of Pioneer Parent and will not receive cash distributions or will receive distributions much smaller than the distributions received from the partnership. Pioneer Parent's board of directors did not declare dividends to its stockholders during 1999, 2000 or the six months ended June 30, 2001. The determination of the amount of future cash dividends, if any, to be declared and paid is in the sole discretion of Pioneer Parent's board of directors. LIMITED PARTNERS WHO BECOME PIONEER PARENT STOCKHOLDERS MAY BE DILUTED If all partnerships participate in the mergers, the shares of Pioneer Parent common stock to be issued will represent approximately 6% of the shares of Pioneer Parent common stock outstanding on the date of this document. That percentage is based upon the number of shares to be issued upon the merger of each partnership using an assumed average closing price of $18.00 per share of Pioneer Parent common stock and may increase or decrease depending on the actual number of shares issued upon the merger of each partnership, which number will be determined using the actual average closing price of Pioneer Parent common stock for the ten trading days ending three business days before the initial date scheduled for the special meeting. Because of the increased liquidity afforded to the limited partners of each partnership after the merger of the partnership, all of those shares of Pioneer Parent common stock may be offered for sale in a relatively short period of time, which could result in the price at which shares of Pioneer Parent common stock trade after completion of the merger of each partnership being less than the price at which such shares traded immediately prior to the completion of the merger of each partnership. In addition, limited partners of a partnership who become Pioneer Parent stockholders will be subject to the risk that their equity interests in Pioneer Parent may be diluted through the issuance of additional equity securities. Pioneer Parent has the right to issue, at the discretion of its board of directors, shares other than those to be issued in the merger of each partnership, upon such terms and conditions and at such prices as its board of directors may establish. In addition, Pioneer Parent may in the future issue preferred stock that might have priority over the Pioneer Parent common stock as to distributions and liquidation proceeds. DIVIDENDS PAID TO PIONEER PARENT STOCKHOLDERS ARE TAXED AT TWO LEVELS Pioneer Parent is taxed on its income, after deduction of expenses, at both the federal and state levels. Pioneer Parent stockholders, including limited partners who become Pioneer Parent stockholders, are separately taxed on the receipt, if any, of dividends. PIONEER PARENT'S PROFITABILITY IS HIGHLY DEPENDENT ON THE PRICES OF OIL AND GAS, WHICH HAVE HISTORICALLY BEEN VERY VOLATILE Pioneer Parent's revenues, profitability, cash flow and future rate of growth are highly dependent on prices of oil and gas, which are affected by numerous factors beyond Pioneer Parent's control. Oil and gas prices historically have been very volatile. If the significant downward trend in oil and gas prices experienced in 1998, as compared to 2000 and 1999, were to resume, it would have a material adverse effect on Pioneer Parent's revenues, profitability and cash flow and could result in a reduction in the carrying value of Pioneer Parent's oil and gas properties and an increase in Pioneer Parent's deferred tax asset valuation allowance. 23 36 PIONEER PARENT'S DRILLING ACTIVITIES MAY NOT BE PRODUCTIVE Drilling involves numerous risks, including the risk that no commercially productive gas or oil reservoirs will be encountered. The cost of drilling, completing and operating wells is often uncertain and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including - unexpected drilling conditions, - pressure or irregularities in formations, - equipment failures or accidents, - adverse weather conditions, and - shortages or delays in the delivery of equipment. Pioneer Parent's future drilling activities may not be successful and, if unsuccessful, such failure could have an adverse effect on Pioneer Parent's future results of operations and financial condition. While all drilling, whether developmental or exploratory, involves these risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons. Because of the percentage of Pioneer Parent's capital budget devoted to exploratory projects, it is likely that Pioneer Parent will continue to experience exploration and abandonment expense. PIONEER PARENT MAY BE REQUIRED TO RECOGNIZE NON-CASH CHARGES RELATING TO UNPROVED PROPERTY COSTS At December 31, 2000 and 1999, Pioneer Parent carried unproved property costs of $229.2 million and $257.6 million, respectively. United States generally accepted accounting principles require Pioneer Parent to periodically evaluate these costs on a project-by-project basis in comparison to their estimated value. These evaluations will be affected by - results of exploration activities, - commodity price outlooks, - planned future sales, or - expiration of all or a portion of the leases, contracts and permits related to such projects. If the quantity of potential reserves determined by such evaluations is not sufficient to fully recover the cost invested in each project, Pioneer Parent will recognize non-cash charges in the earnings of future periods. During 1999 and 1998, Pioneer Parent recognized non-cash impairment provisions of $17.9 million and $147.3 million, respectively, to reduce the carrying value of its unproved properties. PIONEER PARENT'S GROWTH DEPENDS ON ITS ABILITY TO ACQUIRE OIL AND GAS PROPERTIES ON A PROFITABLE BASIS Acquisitions of producing oil and gas properties have been a key element of Pioneer Parent's growth. Pioneer Parent's growth following the full development of its existing property base could be impeded if it is unable to acquire additional oil and gas properties on a profitable basis. The success of any acquisition will depend on a number of factors, including the ability to estimate accurately the recoverable volumes of reserves, rates of future production and future net revenues attributable to reserves and to assess possible environmental liabilities. All of these factors affect whether an acquisition will ultimately generate cash flows sufficient to provide a suitable return on investment. Even though Pioneer Parent performs a review of the properties it seeks to acquire that it believes is consistent with industry practices, such reviews are often limited in scope. IF PIONEER PARENT IS UNABLE TO DISPOSE OF NON-STRATEGIC ASSETS AT ACCEPTABLE PRICES, THIS WOULD HINDER ITS ABILITY TO MAKE CAPITAL RESOURCES AVAILABLE FOR MORE PROFITABLE ACTIVITIES Pioneer Parent regularly reviews its property base for the purpose of identifying non-strategic assets, the disposition of which would increase capital resources available for other activities and create organizational and operational efficiencies. Various factors could materially affect the ability of Pioneer Parent to dispose of non-strategic assets, including the availability of purchasers willing to purchase the non-strategic assets at prices acceptable to Pioneer Parent. 24 37 THE OPERATION OF NATURAL GAS PROCESSING PLANTS INVOLVES THE POTENTIAL FOR DAMAGE CLAIMS As of December 31, 2000, Pioneer Parent owns interests in nine natural gas processing plants and four treating facilities. Pioneer Parent operates six of the plants and all four treating facilities. There are significant risks associated with the operation of natural gas processing plants. Gas and natural gas liquids are volatile and explosive and may include carcinogens. Damage to or misoperation of a natural gas processing plant or facility could result in an explosion or the discharge of toxic gases, which could result in significant damage claims in addition to interrupting a revenue source. PIONEER PARENT IS NOT FULLY INSURED AGAINST OPERATING HAZARDS Pioneer Parent's operations are subject to all the risks normally incident to the oil and gas exploration and production business, including blowouts, cratering, explosions and pollution and other environmental damage, any of which could result in substantial losses to Pioneer Parent due to injury or loss of life, damage to or destruction of wells, production facilities or other property, clean-up responsibilities, regulatory investigations and penalties and suspension of operations. Although Pioneer Parent currently maintains insurance coverage that it considers reasonable and that is similar to that maintained by comparable companies in the oil and gas industry, it is not fully insured against certain of these risks, either because such insurance is not available or because of high premium costs. IN THE EVENT OF NONCOMPLIANCE, LIABILITIES UNDER ENVIRONMENTAL LAWS AND REGULATIONS COULD BE SUBSTANTIAL The oil and gas business is also subject to environmental hazards, such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose Pioneer Parent to substantial liability due to pollution and other environmental damage. A variety of federal, state and foreign laws and regulations govern the environmental aspects of the oil and gas business. Noncompliance with these laws and regulations may subject Pioneer Parent to penalties, damages or other liabilities, and compliance may increase the cost of Pioneer Parent's operations. Such laws and regulations may also affect the costs of acquisitions. Additionally, changes in environmental laws in the future could result in a curtailment of production or processing or a material increase in the costs of production, development, exploration or processing or could otherwise adversely affect Pioneer Parent's operations and financial condition. Pollution and similar environmental risks generally are not fully insurable. THERE ARE FACTORS OUTSIDE OF PIONEER PARENT'S CONTROL WHICH COULD IMPAIR ITS ABILITY TO SATISFY ITS DEBT OBLIGATIONS Pioneer Parent is a borrower under fixed term senior notes and a line of credit. The terms of Pioneer Parent's borrowings under the senior notes and the line of credit specify scheduled debt repayments and require Pioneer Parent to comply with covenants and restrictions. Pioneer Parent's ability to comply with the debt repayment terms, associated covenants and restrictions is dependent on, among other things, factors outside Pioneer Parent's direct control, such as commodity prices, interest rates and competition for available debt financing. THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE Pioneer Parent competes with other companies, producers and operators for acquisitions and in the exploration, development, production and marketing of oil and gas. Some of these competitors have substantially greater financial and other resources than Pioneer Parent. PRESENT OR FUTURE REGULATIONS COULD ADVERSELY AFFECT PIONEER PARENT'S BUSINESS AND OPERATIONS Pioneer Parent's business is regulated by a variety of federal, state, local and foreign laws and regulations. There can be no assurance that present or future regulations will not adversely affect Pioneer Parent's business and operations. PIONEER PARENT HAS INTERNATIONAL OPERATIONS THAT ARE SUBJECT TO INTERNATIONAL ECONOMIC AND POLITICAL RISKS At December 31, 2000, approximately 22% of Pioneer Parent's proved reserves of oil, natural gas liquids and gas were located outside the United States (17% in Argentina, 4% in Canada and 1% in South Africa). The success and profitability of international operations may be adversely affected by risks associated with international activities, including - economic and labor conditions, - political instability, 25 38 - tax laws, including United States taxes on foreign subsidiaries, and - changes in the value of the United States dollar versus the local currency. To the extent that Pioneer Parent is involved in international activities, changes in exchange rates may adversely affect Pioneer Parent's consolidated revenues and expenses, as expressed in United States dollars. NUMEROUS UNCERTAINTIES EXIST IN ESTIMATING PIONEER PARENT'S QUANTITIES OF PROVED RESERVES AND FUTURE NET REVENUES Estimates of proved reserves and related future net revenues are based on various assumptions which may prove to be inaccurate. Therefore, those estimates should not be construed as being accurate estimates of the current market value of Pioneer Parent's proved reserves. 26 39 SPECIAL FACTORS BACKGROUND OF THE MERGER OF EACH PARTNERSHIP The partnerships were formed from 1981 through 1991 under the sponsorship of various affiliated companies collectively known as Parker & Parsley. On February 19, 1991, Parker & Parsley's principal company converted from limited partnership form to corporate form and acquired most of the assets of five oil and gas limited partnerships. The new corporation was called Parker & Parsley Petroleum Company, and it owned the sole or managing general partners of the partnerships. In early 1992, Parker & Parsley Petroleum Company decided that it could not fully realize the benefits of the properties it had acquired while continuing to devote substantial resources to the sponsorship of and drilling for partnerships. It stopped sponsoring oil and gas development drilling and income partnerships and focused on its corporate development. In 1997, Parker & Parsley Petroleum Company and MESA Inc. combined their businesses in a merger that created Pioneer Natural Resources Company. That same year, Pioneer Parent combined many of its U.S. subsidiaries, including the managing or sole general partner of each of the partnerships, into its main subsidiary, Pioneer USA. From time to time since 1992, Pioneer Parent and its predecessors have had general, internal discussions about whether to consolidate each partnership pursuant to a merger or similar transaction with each partnership. On several occasions, Pioneer Parent or its predecessors engaged outside legal counsel and had discussions with investment banks about a possible combination with each of the partnerships. Some of those discussions were with Stanger. The contemplated structure of the combination has varied significantly during these internal discussions and has included issuances of common stock, combinations of common stock and cash, and cash-only transactions through asset sales, mergers, tender offers, and combinations of those types of transactions. See "Special Factors -- Reasons for the Merger of Each Partnership" for a discussion of why Pioneer Parent and Pioneer USA selected the proposed transaction. In general, the contemplated transactions would have been taxable to the limited partners of each partnership because of the difficulties involved in structuring a tax-free transaction for the partnership. Until 1999, every time Pioneer Parent or its predecessors considered such a transaction, it decided not to complete the transaction. The reasons Pioneer Parent and its predecessors did not previously complete a transaction varied. In some early cases, they wanted to collect and fully distribute proceeds to the limited partners of each partnership from litigation against an oilfield services company before trying to value any partnership. In other cases, they wanted to avoid periods of volatility in oil and gas prices or in Pioneer Parent's stock price. On several occasions, Pioneer Parent was involved in other corporate transactions that could not be completed on schedule if a transaction with each partnership was also pending. In early 1998, Pioneer Parent was formulating a strategic plan to focus on its 25 core area oil and gas fields and to eliminate ancillary operations. Pioneer Parent began discussions internally to consider a transaction involving each partnership, including the basis for valuing each partnership and whether the consideration should be Pioneer Parent common stock, cash or some combination of both. During the second quarter of 1998, Pioneer Parent and Pioneer USA began to discuss the methods for valuing each partnership. At that time, the board of directors of Pioneer USA engaged Sayles, Lidji & Werbner, A Professional Corporation (then known as Sayles & Lidji, A Professional Corporation) based in Dallas, Texas, as its independent legal counsel to assist the board in evaluating a potential transaction with Pioneer Parent. Pioneer USA's board also engaged Stanger as its financial advisor to review any proposed transaction and to render an opinion as to the fairness of the offer price, from a financial point of view, to the unaffiliated limited partners of each partnership. In May 1998, Pioneer Parent submitted an offer to merge each partnership into Pioneer USA using Pioneer Parent common stock or a combination of Pioneer Parent common stock and cash. The pricing for that offer was primarily based on oil and gas prices and the present value of estimated future net revenues from each partnership's oil and gas reserves, in each case as of December 31, 1997. The present value of estimated future net revenues was determined in accordance with the SEC's reporting convention that provides a common basis for comparing oil and gas companies and requires the use of oil and gas prices as of the date of computation, but using a 15% discount rate. After some negotiation with Pioneer USA, Pioneer Parent withdrew the May 1998 offer due to the decline in oil prices. In July 1998, Pioneer Parent submitted a second offer using Pioneer Parent common stock, or at its option upon the occurrence of specified events, a combination of Pioneer Parent common stock and cash. The oil and gas pricing for the second offer was lower than the pricing in the May 1998 offer due to the continued decline in oil prices, but the discount rate for the second offer was the same as the 27 40 May 1998 offer. Pioneer Parent and Pioneer USA decided to discontinue further discussions and not to submit the proposed transaction to the limited partners of any partnership because of: - the continued decline in oil prices, which in turn would reduce any merger value to be paid to the limited partners of each partnership; - the decline in Pioneer Parent's stock price; and - the tight lending environment for many oil and gas companies, including Pioneer Parent. As oil and gas prices improved, in June 1999, Pioneer Parent and Pioneer USA again began discussions internally to consider a transaction involving each partnership. At that time, Scott Sheffield, the President and Chief Executive Officer of Pioneer Parent, contacted members of Pioneer USA's board regarding consideration of a potential transaction involving each partnership. Pioneer Parent did not submit a written offer to Pioneer USA at that time. During the second quarter of 1999, Pioneer Parent and Pioneer USA attempted to formally address the conflicting interests inherent in the relationships among Pioneer Parent, Pioneer USA, each partnership and the officers and directors of Pioneer Parent and Pioneer USA. Pioneer USA caused Scott D. Sheffield to resign from Pioneer USA's board of directors because he is also a member of Pioneer Parent's board of directors. He was not replaced. Pioneer USA did not consider replacing Mr. Sheffield with an unaffiliated director because Pioneer USA is a 100% subsidiary of Pioneer Parent and typically such wholly-owned subsidiaries do not have unaffiliated directors. Because all of the board members of Pioneer USA are also employees of Pioneer Parent, an inherent conflict exists with respect to their duties to the limited partners of each partnership in their capacity as directors of Pioneer USA, on the one hand, and their duties to Pioneer Parent as employees, on the other hand. Shortly thereafter, Pioneer USA's board again engaged Sayles, Lidji & Werbner to advise the board in connection with a proposed transaction with Pioneer Parent and any other alternative transaction that the board determined was worth consideration. Pioneer USA's board also engaged, on behalf of each partnership, Stanger, as its financial advisor to advise the board on the fairness from a financial point of view of the merger value for each partnership to be paid to the unaffiliated limited partners in the partnership for the limited partnership interests in the partnership and to assist in Pioneer USA's evaluation of the merger transaction and other strategic alternatives. Stanger was familiar with the circumstances from its 1998 engagement. On July 14, 1999, Pioneer USA's board met with its counsel and Stanger to discuss the proposed merger of each partnership. Stanger presented an overview of the analysis it planned to perform in evaluating the fairness of the proposed transaction. Stanger advised Pioneer USA's board that Stanger would review the following for each partnership: - the reserve report to be prepared by Williamson Petroleum Consultants, Inc. as of September 30, 1999; - the most recent quarterly financial statements; - the estimated cash distributions; - the estimated net asset value, going concern value and liquidation value; - secondary market prices; - tender offers; and - repurchase offers. Sayles, Lidji & Werbner then reviewed and discussed with the board the procedures that would be involved in completing the proposed transaction with Pioneer Parent. The discussion topics included: - the process in which Pioneer USA's board of directors would approve the proposed transaction; - the submission of the proposed merger of each partnership to the limited partners of the partnership for approval; - the evaluation of offers from third parties; - the application of and compliance with the requirements of the federal securities laws; and - the timing of the proposed transaction. 28 41 Members of the Pioneer USA board met informally on several occasions during July and early August to discuss among each other the proposed terms of the merger transaction and other potential alternative transactions, including the formation of a royalty trust or a master limited partnership. On August 16, 1999, at a special meeting of the Pioneer USA board, the board met with representatives of Sayles, Lidji & Werbner and Stanger to discuss the proposed merger of each partnership into Pioneer USA. Pioneer USA's board discussed with the representatives of Stanger and Sayles, Lidji & Werbner the proposed terms of the offer expected from Pioneer Parent, including the expected pricing parameters of $18 per Bbl of oil and $2.40 per Mcf of gas and the expected timing of receipt of Pioneer Parent's formal written offer. Stanger discussed the progress it was making on its financial analysis of each partnership and its determination of the fairness from a financial point of view of the merger value for each partnership to be paid in cash for the limited partners' interests in the partnership. Stanger's discussion centered on (1) the price to be paid for the oil and gas reserves, (2) the discount rate, (3) the application of overhead charges and administrative charges, and (4) the responsibility for any transaction expenses. Following this discussion, the board and its counsel discussed the board's fiduciary duties in evaluating the proposed transaction with Pioneer Parent and the making of a recommendation to the unaffiliated limited partners. Finally, the board decided to request that Pioneer Parent make a formal written offer outlining the terms of the proposed merger transaction. On August 17, 1999, in response to Pioneer USA's request for a written offer, Pioneer Parent delivered to Pioneer USA's board a written proposal which outlined the terms of the proposed merger transaction. The written offer specified that the pricing for the oil and gas reserves would be based on 95% of the arithmetic average of a four-year or five-year NYMEX futures price. The future cash flows generated by this pricing structure would then be discounted using a 15% discount rate. At a special meeting that day of Pioneer USA's board, the board, its counsel and Stanger met to discuss the specifics of Pioneer Parent's offer, including oil and gas pricing, the present value discount rate, the right to allow others to bid on the property, and the costs of the merger of each partnership. Following the board meeting, Pioneer USA's directors determined that it would be advantageous to each partnership to seek more favorable pricing terms and a lower discount rate. Thus, the board decided to continue discussions of the written offer. On August 23, 1999, at a special meeting of Pioneer USA's board, the board updated its counsel and Stanger on the status of its discussions with Pioneer Parent. As a result of continued discussions, Pioneer Parent and Pioneer USA agreed, in response to requests by Stanger, (1) to reduce the discount rate from 15% to 12.5%, (2) to increase the pricing of the oil reserves from 95% of the arithmetic average of a four-year or five-year NYMEX futures price to 100% of the arithmetic average of the five-year NYMEX futures price, (3) to a fixed price of $2.40 per Mcf of gas instead of a floating NYMEX futures price and (4) to allocate the merger expenses and fees to each participating partnership. On September 2, 1999, at a special meeting of Pioneer USA's board, the board and representatives of Stanger and Sayles, Lidji & Werbner reviewed the terms of a revised proposal submitted by Pioneer Parent which incorporated these changes. The parties discussed the revised terms of the merger of each partnership and the strategic rationale for and benefits of the merger of each partnership. At this meeting, Stanger reviewed with the board its financial analysis and its evaluation of the merger consideration and the feasibility of other strategic alternatives. Stanger also orally presented to the board the status of its findings and its preliminary evaluation of the proposed transaction. After considering Stanger's evaluation of the proposed merger transaction, Pioneer USA's board, together with representatives of Stanger, engaged in a general discussion of other possible transactions it had considered over the last six to eight months. This discussion included anticipated ongoing operations of each partnership under its current structure and the operation of each partnership through a master limited partnership structure, as well as through a royalty trust. The board discussed selling the oil and gas properties of each partnership at auction and potentially soliciting other buyers or merger partners. The board also considered the fact that other potential buyers of each partnership would have an opportunity to make an offer for each partnership before the board submitted the merger transaction to the limited partners of each partnership for their consideration and approval. At a special meeting held on September 8, 1999, Pioneer USA's board continued discussions with Sayles, Lidji & Werbner and Stanger regarding the merger proposals for each partnership. After considering the alternatives discussed in the preceding paragraph, including the advantages and disadvantages of each, the board concluded that none of the alternatives was more advantageous to the limited partners of any partnership than the terms of the proposed merger of the partnership. The board then unanimously approved proceeding with the merger of each partnership, subject to determination of September 30, 1999 pricing, its receipt of Stanger's fairness opinion, and the board's determination that the merger consideration of each partnership is fair to the unaffiliated limited partners of that partnership based on all circumstances as of September 30, 1999, including without limitation, the then current market conditions and the existence, if any, of any other proposal for the partnership on terms more favorable to the limited partners. 29 42 On September 8, 1999, in connection with the proposed merger transaction, Pioneer Parent and Pioneer USA filed a preliminary proxy statement and preliminary Schedule 13e-3s with the Securities and Exchange Commission. In addition, Pioneer Parent and Pioneer USA publicly announced the proposed merger of each partnership. In that announcement, Pioneer USA also announced that it would consider proposals from other potential buyers of one or more of the partnerships. On or about October 19, 1999, Pioneer Parent submitted a verbal offer to Pioneer USA to revise the oil reserve component of the pricing used in the preliminary proxy statement to $18.35 per Bbl of oil. On or about November 3, 1999, Pioneer Parent submitted a second verbal offer to Pioneer USA to further revise the oil reserve pricing to $18.40 per Bbl of oil. Later that month, due to the increase in oil and gas prices over the previous several months and in response to a request from Pioneer USA, Pioneer Parent proposed to Pioneer USA that the merger value calculation for each partnership be further modified (1) to increase the pricing to $18.90 per Bbl for oil and $2.55 per Mcf of gas and (2) to increase the discount rate to 15%. On November 17, 1999, in connection with the approval of Pioneer Parent's capital budget for 2000, Pioneer Parent's board of directors met and voted to approve the merger of each partnership and to proceed with the completion of each merger, subject to the pricing information and other relevant conditions at the time. At a special board meeting held on November 22, 1999, Pioneer USA's board of directors met with representatives from Stanger and Sayles, Lidji & Werbner to discuss Pioneer Parent's proposed pricing. Pioneer USA's board agreed that an increase in the merger value for each partnership based on Pioneer Parent's proposed pricing was warranted to more closely reflect the current oil and gas prices. Similarly, in view of increases in interest rates during the months since the original proposal was made and in view of the volatility of oil and gas prices over the previous year, Pioneer USA's board agreed to increase the discount rate used to determine the merger value for each partnership from 12.5% to 15%. Pioneer USA's board reported that management had worked to reduce the expected merger expenses and fees from an estimated $4.6 million to an estimated $1.8 million, thereby increasing the merger value for each partnership to be received by the limited partners of the partnership. The board also received a status report on whether or not any third party offers had been received since September 8, 1999, the date on which Pioneer Parent and Pioneer USA announced that it would consider such offers. In that regard, Pioneer Parent and Pioneer USA had not received any formal offers, but did receive a few inquiries from third parties expressing an interest in possibly making a bid on one or more of the partnerships or the assets of one or more of the partnerships. The nature of the inquiries was to understand the structure and pricing of the transaction proposed by Pioneer and Pioneer USA. None of the third parties who made inquiries (1) specified any terms, (2) made any offer or (3) have pursued the matter further. The board then voted to extend the period it would be willing to consider third party offers from November 1, 1999 to December 31, 1999. Stanger then reviewed for the board Stanger's analysis of the fairness of the merger transaction using the new terms agreed to by Pioneer Parent and Pioneer USA. Stanger expressed its preliminary view that the revised merger value for each partnership to be paid in cash for the limited partnership interests in each partnership would be fair from a financial point of view to the unaffiliated limited partners of the partnership under recent market conditions, but stated that whether or not the transaction would be considered fair by Stanger at the time its fairness opinion was sought would depend on market conditions at that time. Following this discussion, the board approved proceeding with the merger of each partnership on the new terms, subject to (1) its receipt of a fairness opinion from Stanger, and (2) its determination that the merger value to be paid in cash for the limited partnership interests in each partnership is fair to the unaffiliated limited partners of the partnership based on all circumstances, including without limitation, the then current market conditions and the existence, if any, of any other proposal for such partnership or its assets on terms more favorable to the unaffiliated limited partners than the proposed merger transaction. In December 1999, Pioneer Parent became involved in discussions with an independent oil and gas company similar in size to Pioneer Parent relating to a corporate merger opportunity. Those discussions required the dedicated time and attention of Pioneer Parent's management. The corporate merger opportunity subsequently failed to come to fruition. Meanwhile, during December 1999 and the first quarter of 2000, oil and gas prices continued to increase. As a result, during the first quarter of 2000, Pioneer Parent and Pioneer USA began to discuss revising the pricing terms of the proposed merger transaction to (1) an arithmetic average of the five-year NYMEX futures price for oil and for gas and (2) a 15% discount rate. Pioneer Parent also proposed to offer Pioneer Parent common stock instead of cash to the limited partners of each participating partnership. In April 2000, Pioneer Parent and Pioneer USA discontinued these discussions and did not submit the proposed merger transaction to the limited partners of any partnership because of: - the decline in Pioneer Parent's stock price; - the increase in interest rates; and - Pioneer Parent's involvement in replacing existing debt with new publicly-held debt and a new credit facility. 30 43 In September 2000, Pioneer Parent and Pioneer USA began internal discussions to consider a merger transaction involving 13 privately-held employee limited partnerships. Pioneer Parent offered to pay an amount of cash to the limited partners of each participating partnership equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of September 30, 2000, less the cash distributions on October 15, 2000 and November 15, 2000, by the partnership to its partners. Pioneer Parent and Pioneer USA calculated the present value of the estimated future net revenues from each partnership's estimated oil and gas reserves using (1) a five-year NYMEX futures price for oil and gas as of August 25, 2000, with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 13.5% discount rate. Pioneer Parent also agreed to bear the merger expenses and fees. Using the same parameters as described above, Pioneer Parent purchased all of the direct oil and gas interests held by Scott D. Sheffield, its chairman of the board of directors and chief executive officer, for $0.2 million during October 2000. The consideration paid in the mergers of the employee limited partnerships and in the purchase of the direct oil and gas interests was all cash since offering and registering Pioneer Parent common stock in those transactions was cost-prohibitive due to the small size of such transactions. In December 2000, Pioneer Parent and Pioneer USA completed the merger of each of the 13 privately-held employee limited partnerships with and into Pioneer USA. In October 2000, Pioneer Parent terminated the preliminary proxy statement and preliminary Schedule 13e-3s filed with the Securities and Exchange Commission on September 8, 1999 in connection with the proposed merger transaction. As oil and gas prices continued to improve, in January 2001, Pioneer Parent and Pioneer USA renewed their internal discussions to consider a transaction involving each of the partnerships described in this document. For a discussion of why Pioneer Parent and Pioneer USA selected the proposed merger transaction, see "Alternative Transactions to the Merger of Each Partnership" on page 46. Pioneer Parent offered a combination of its common stock and cash. Pioneer Parent and Pioneer USA agreed on a merger value for each participating partnership equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001. Pioneer Parent and Pioneer USA agreed to calculate the present value of the estimated future net revenues from each partnership's estimated oil and gas reserves using (1) a five-year NYMEX futures price for oil and gas as of March 30, 2001, with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 13.5% discount rate. For 2001, the oil and gas prices would be based on the average NYMEX futures price for the nine-month period beginning on April 1, 2001 and ending December 31, 2001. Pioneer Parent also agreed to bear the merger expenses and fees. On February 15, 2001, Pioneer Parent's board of directors met and authorized its officers to communicate its offer to the board of directors of Pioneer USA, as general partner of the partnerships, and to negotiate the terms of the mergers with Pioneer USA. Pioneer Parent's board of directors also voted to approve the merger of each partnership into its subsidiary Pioneer USA, the issuance of Pioneer Parent common stock and the payment of cash upon each such merger, and to otherwise proceed with the completion of each merger, subject to the pricing information and other relevant conditions at the time. During March 2001, Pioneer Parent offered to acquire all of the direct oil and gas interests owned by some former officers and employees of Pioneer Parent and Pioneer USA in properties in which Pioneer Parent and Pioneer USA own interests. The merger value for the direct oil and gas interests was equal to the present value of estimated future net revenues from the oil and gas reserves attributable to the interests, as of March 31, 2001. In determining the present value, Pioneer Parent and Pioneer USA used (1) a five-year NYMEX futures price for oil and gas as of March 19, 2001 with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 13.5% discount rate. The consideration offered in the purchases of the direct oil and gas interests was all cash since offering and registering Pioneer Parent common stock in those purchases was cost-prohibitive due to the small size of such transactions. In April 2001, Pioneer USA contacted Sayles, Lidji & Werbner and Stanger to advise them of the proposed merger transaction, pricing terms and merger consideration. On April 9, 2001, Pioneer USA's board met with Sayles, Lidji & Werbner to discuss the proposed merger of each partnership into Pioneer USA. The board members reviewed the terms of the merger transaction, including the pricing terms, the merger consideration and the terms and conditions of the proposed merger agreement. The board members also discussed the engagement of special legal counsel to render the legal opinion required by each partnership's partnership 31 44 agreement. Finally, Pioneer USA's board discussed the fairness opinion to be delivered by Stanger and decided to hold another board meeting at which Stanger would present in detail its methodology in determining that the merger value for each partnership and the allocation of the merger value of each partnership (1) to the limited partners of each partnership as a group, (2) to the general partners of each partnership as a group, (3) to Pioneer USA as the managing or sole general partner of each partnership, (4) to the unaffiliated limited partners of each partnership as a group and (5) to the unaffiliated limited partners of the nonmanaging general partner, if any, of each partnership as a group, is fair to the unaffiliated limited partners of each partnership and the unaffiliated limited partners of the nonmanaging general partner, if any, of each partnership, from a financial point of view. The board decided to proceed with the merger transaction, but would withhold recommending the merger transaction to the limited partners or executing the merger agreement until it received the fairness opinion from Stanger and determined that the merger of each partnership is advisable, fair to the unaffiliated limited partners and in the unaffiliated limited partners' best interests. On April 17, 2001, in connection with the proposed merger transaction, Pioneer Parent and Pioneer USA filed a registration statement on Form S-4 and preliminary Schedule 13e-3s with the Securities and Exchange Commission. In addition, Pioneer Parent and Pioneer USA publicly announced the proposed merger of each partnership. In that announcement, Pioneer USA also announced that it would continue to consider proposals from other potential buyers of any partnership or its assets. On or about April 30, 2001, Stanger contacted members of Pioneer USA's board and expressed concern regarding the pricing terms of the merger transaction which Stanger had received during the week ended April 15, 2001. Based on Stanger's updated analysis of the new pricing terms for the merger transaction, Stanger questioned whether the merger value was fair to the unaffiliated limited partners of the partnerships and the unaffiliated limited partners of the nonmanaging general partners of the partnerships from a financial point of view. Stanger's updated analysis included (i) an analysis of reserve values under six alternative pricing cases and discount rate assumptions, (ii) a review of reserve pricing parameters, (iii) a summary of selected recent reserve acquisition transactions, (iv) a review of the trading history, net asset value estimates and projected cash flow for Pioneer Parent, and (v) a review of the revised offer price per $1,000 investment in each partnership and a comparison to such partnership's net asset value, going concern value, liquidation value, secondary market price, tender offers and repurchase offers, as applicable. After discussions between members of Pioneer USA's board and Stanger to discuss pricing terms which Stanger and the Pioneer USA board believed would be fair to the unaffiliated limited partners of the partnerships and the unaffiliated limited partners of the nonmanaging general partners of the partnerships from a financial point of view, the Pioneer USA board requested that Stanger meet with Pioneer Parent to discuss the issue. Stanger met with officers of Pioneer Parent on June 15, 2001, to discuss Stanger's concerns about the proposed pricing terms of the mergers and the need for new pricing terms that were more favorable to the partnerships in order to support a fairness opinion. On May 7, 2001, Pioneer USA received proposed solicitation materials prepared by Sierra Fund 3 indicating that Sierra Fund planned to make a tender offer for up to 4.9% of the limited partnership interests of Parker & Parsley 88-A, L.P. and Parker & Parsley 89-A, L.P. at a price equivalent to $200 and $240 per $1,000 initial investment, respectively, in each of the partnerships. Sierra Fund requested and received a list of limited partners of these partnerships. On June 28, 2001, Pioneer USA learned that on or about June 14, 2001 Sierra Fund made a tender offer for up to 4.9% of the limited partnership interests of Parker & Parsley 83-A, Ltd., Parker & Parsley 83-B, Ltd., Parker & Parsley 84-A, Ltd., Parker & Parsley 85-A, Ltd., Parker & Parsley 86-B, Ltd., and Parker & Parsley 87-B, Ltd. at a price equivalent to $75, $85, $110, $80, $110 and $110 per $1,000 investment, respectively, in each of the partnerships. On July 11, 2001, as required by law, Pioneer USA filed with the SEC a response to each of Sierra Fund's tender offers taking a neutral position with respect to each tender offer. Three other limited partners have expressed interest to Pioneer USA in either making offers for the assets of particular partnerships or in purchasing the limited partnership interests of other limited partners. In May 2001, Salvage Investors, L.L.C. expressed interest in making an offer for the assets of Parker & Parsley 82-I, Ltd. but did not indicate a price at which it would be willing to purchase those assets. Also in May 2001, Horace Potts IV expressed interest in making an offer for the assets of unspecified partnerships or, alternatively, in soliciting higher offers on the assets of those partnerships, but did not indicate a price at which he would be willing to purchase those assets. In June 2001, Nancy R. Schauer expressed interest in purchasing limited partnership interests of Parker & Parsley 87-A Conv., Ltd., Parker & Parsley 87-B Conv., Ltd. and Parker & Parsley Private Investment 88, L.P. Pioneer USA received a copy of correspondence from Ms. Schauer to the limited partners of those partnerships in which Ms. Schauer asked the limited partners to vote against the proposed mergers and to call her if they wanted to sell their limited partnership interest. Additionally, in May 2001 James A. Smith of Indigo Ventures requested, and Pioneer later sent to him, a list of the limited partners of Parker & Parsley Private Investment 89, L.P. and Parker and Parsley 90 Spraberry Private 32 45 Development, L.P. Pioneer Parent and Pioneer USA do not know if Mr. Smith contacted any limited partners of those partnerships. On June 12, 2001, the Pioneer USA board of directors voted to change the method for allocating the expenses of the mergers such that (i) the limited partners of the participating partnerships would bear their pro rata portion of the merger expenses, and (ii) the limited partners of each nonparticipating partnership would bear a portion of the merger expenses equal to the number of limited partnership interests of such partnership voting in favor of the merger divided by the total number of limited partnership interests of such partnership voting on the merger. On June 18, 2001, in follow-up discussions between Pioneer Parent, Pioneer USA and Stanger, Pioneer Parent and Pioneer USA orally agreed, subject to the approval of their respective boards, to revise the pricing terms of the merger transaction as follows: (1) that the merger value for each partnership would equal the sum of the partnership's reserve value and its working capital, in each case as of March 31, 2001, less the cash distribution to be paid in July 2001 and less the partnership's pro rata share of expenses and fees to be incurred in connection with the mergers of all of the partnerships, except that Pioneer Parent would pay (A) any such expenses and fees in excess of $2,000,000 in the aggregate and (B) a portion of such expenses and fees otherwise allocable to any nonparticipating partnership, (2) to reduce the discount rate that would be used in calculating the present value of the estimated future net revenues from 13.5% to 10%, (3) to change the composition of the payment of the merger value for each partnership from 25% in cash and 75% in shares of Pioneer Parent common stock to 100% in shares of Pioneer Parent common stock based on the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three days business days before the date of the special meeting of the partnership, and (4) to engage Williamson Petroleum Consultants, Inc. to review the estimate of each partnership's reserves and the present value of the estimated future net revenues from those estimated reserves as of March 31, 2001. The effect of the revised pricing terms was to increase the merger consideration that would be paid to each of the participating partnerships upon completion of the merger transaction. On June 21, 2001, Pioneer Parent's board met and approved the revised pricing terms. At a special meeting held on June 21, 2001, Pioneer USA's board continued discussions with Sayles, Lidji & Werbner and Stanger regarding the merger proposals for each partnership. Stanger also orally presented to Pioneer USA's board the status of its findings and its preliminary evaluation of the proposed transaction based on the new pricing terms for the merger transaction. Pioneer USA's board decided that it would take the recommendation of the merger transaction to the limited partners of each partnership under advisement, so that the board members could review the written presentation materials provided by Stanger and the revised written offer to be submitted by Pioneer Parent, and agreed to convene a special meeting on June 25, 2001. On June 22, 2001, Pioneer Parent submitted its written offer with the revised pricing terms to Pioneer USA. On June 25, 2001, Pioneer USA's board held a special meeting with Sayles, Lidji & Werbner and Stanger to discuss the merger proposals for each partnership and Stanger's fairness opinion. The board then unanimously approved proceeding with the merger of each partnership, subject to (1) the execution of a definitive merger agreement, (2) its receipt of Stanger's fairness opinion, and (3) the Securities and Exchange Commission's declaration that the registration statement that includes this document is effective under the Securities Act of 1933. On July 3, 2001, Pioneer USA received a letter from a publicly-traded independent oil and gas company indicating its interest in making an offer to acquire the partnerships or the partnerships' assets. At the company's request, Pioneer USA provided a draft confidentiality agreement and established a data room as a predicate to the company's review of the partnerships and the partnerships' assets. In August, the company informed Pioneer USA that it decided not to pursue the acquisition of the partnerships or the partnerships' assets. On July 27, 2001, in order to make the transaction more favorable to the limited partners, Pioneer Parent agreed to bear the merger expenses of the nonparticipating partnerships, and therefore to eliminate the requirement that the nonparticipating partnerships bear a portion of the merger expenses. In a special meeting of the board of Pioneer USA held on August 20, 2001, Stanger presented its analysis of the merger transaction and delivered its fairness opinion dated August 20, 2001, that the merger value for each partnership and the allocation of such merger value (1) to the limited partners of each partnership as a group, (2) to the general partners of each partnership as a group, (3) to Pioneer USA as the managing or sole general partner of each partnership, (4) to the unaffiliated limited partners of each partnership as a group and (5) to the unaffiliated limited partners of the nonmanaging general partner, if any, of each partnership as a group, is fair to the unaffiliated limited partners of each partnership and the unaffiliated limited partners of the nonmanaging general partner, if any, of each partnership, from a 33 46 financial point of view. Although Stanger's fairness opinion found that repurchase offers in six limited partnerships and one secondary market transaction in three limited partnerships were at prices higher than the merger value per $1,000 original investment in those partnerships, the board of Pioneer USA accepted Stanger's conclusion as to the fairness, from a financial point of view, of the merger value and the allocation of the merger value. In doing so, the board of Pioneer USA took into consideration the change in prices of oil and gas since the prices on which the repurchase offers and secondary market transactions were based and also took into account that neither the repurchase offers nor the secondary market afford all limited partners liquidity for all their interests in the limited partnerships. The board of Pioneer USA then unanimously determined that the merger proposals for each partnership are advisable, fair to the unaffiliated limited partners of each partnership and in the best interests of the unaffiliated limited partners of each partnership. Accordingly, the board recommended that the unaffiliated limited partners of each partnership vote for the merger proposals. In a special meeting of the board of Pioneer USA held on September 19, 2001, the board of Pioneer USA unanimously reaffirmed its August 20, 2001, determination that the merger proposals for each partnership are advisable, fair to the unaffiliated limited partners of each partnership, and in the best interests of the unaffiliated limited partners of each partnership. Accordingly, the board recommended that the unaffiliated limited partners of each partnership vote for the merger proposals and authorized the officers of Pioneer USA to execute the merger agreement. On September 20, 2001, Pioneer, Pioneer USA and the partnerships signed the merger agreement. REASONS FOR THE MERGER OF EACH PARTNERSHIP General. For all of the reasons listed below, Pioneer Parent believes that it is the party in the position to pay the highest price for the limited partnership interests of each partnership. Pioneer USA also believes that Pioneer Parent is the most likely buyer for each partnership's properties in light of: - Pioneer USA's operation of most of the properties; - Pioneer USA's extensive property holdings in the same fields; and - Pioneer Parent's ability to achieve efficiencies by consolidating operations with its existing operations in the same areas. Pioneer Parent's Reasons. Pioneer Parent believes that completion of the merger of each partnership at this time is advantageous to it for the following reasons: - Consolidate Core Area of Operations. The Spraberry field of the Permian Basin is one of Pioneer Parent's 25 fields of focus in its strategic plan. Acquisition of each partnership's properties would help consolidate Pioneer Parent's operations in the Spraberry field and achieve operating efficiencies. Pioneer USA operates most of each partnership's wells, and Pioneer Parent has extensive properties around each partnership's properties, including interests in most of each partnership's wells. - Achieve Operating Efficiencies. Pioneer Parent expects to improve operating efficiencies with respect to the properties acquired in the merger of each partnership because it will be able to com-mingle production of oil from each participating partnership's properties with production of oil from other Pioneer Parent properties for storage, transportation and sale. Production of oil from each partnership's properties is predominantly segregated from Pioneer Parent's production of oil until sale. Gas production is currently, and will continue to be, metered, which means that it is measured and allocated based on ownership. - Achieve Administrative Efficiencies. Pioneer Parent will eliminate the time spent by Pioneer Parent employees related to preparing and filing each partnership's separate tax returns, financial statements and, for each reporting partnership, reports with the SEC, as well as dealing with the concerns of approximately 29,000 limited partners of 34 47 record. Although Pioneer Parent will lose the benefit of each partnership's reimbursement for general and administrative expenses, it will be able to use the additional time of its personnel to help achieve its corporate strategic goals. Pioneer USA's Reasons. In considering the merger of each partnership, the board of directors of Pioneer USA considered the benefits to the limited partners of each partnership set forth on page 6 as well as the following factors: - Maturity of Partnerships and Properties. Although each partnership's properties were long-lived at the formation of the partnership, each partnership's properties are now mature, ranging from approximately 10 to approximately 20 years old. Pioneer Parent and Pioneer USA anticipated that at some point each partnership would need to be liquidated. Pioneer USA is recommending the merger transaction for each partnership at this time because: - Pioneer USA believes that Pioneer Parent is the most likely buyer and is the only potential buyer with an offer outstanding. While third parties have made inquiries, no one except Pioneer Parent has made an offer to Pioneer USA to acquire any of the partnerships. - Oil and gas prices have recovered from significant lows in 1998. As a result, Pioneer USA believes that Pioneer Parent's pricing is higher than it would have been otherwise. - As our production continues to decline, administrative expenses for each partnership are increasing on a per BOE produced basis. Moreover, the administrative cost of continuing to produce each partnership to depletion could be significant, especially if no buyer is available at the time each partnership is shut down. - As discussed below, the tax incentives for which each partnership (other than Parker & Parsley Producing Properties 87-A, Ltd., Parker & Parsley Producing Properties 87-B, Ltd. and Parker & Parsley Producing Properties 88-A, L.P., which were formed to purchase producing properties) was originally formed have been realized. - Declining Cash Flows. As each partnership's properties have matured, the net cash flows from operations for the partnership have generally declined, except in periods of substantially increasing commodity prices. See Table 7 of Appendix A for each partnership's historical cash distributions. The marginal benefit of continuing the operations of each partnership is offset by the related administrative costs. These administrative costs consume an increasing amount, and ultimately will consume the entire amount, of the cash flows of each partnership as production declines. - Tax Incentives Have Been Realized. Each partnership (other than Parker & Parsley Producing Properties 87-A, Ltd., Parker & Parsley Producing Properties 87-B, Ltd. and Parker & Parsley Producing Properties 88-A, L.P., which were formed to purchase producing properties) was intended to provide to its partners federal income tax deductions for intangible drilling and development costs incurred by the partnership during the initial years of the partnership. Pioneer USA believes that the tax incentives have been realized through the drilling activities that each partnership has completed. - Partnership Tax Burdens May Now Exceed Benefits. As net cash flow available for distribution of each partnership has declined or, at times, disappeared, some limited partners of the partnership may incur greater costs to include their share of the tax information of the partnership in their returns than they receive in cash distributions. In any event, all limited partners of each partnership are expected to benefit by the elimination of the obligation to include partnership information in their tax returns for the years after the merger of each partnership in which they own interests. - Each Partnership is Unable to Access Additional Capital. Pioneer Parent, through its subsidiary, Pioneer USA, has the ability, financial and otherwise, to take advantage of corporate opportunities to expand its reserve base through acquisitions. None of the partnerships has the ability to raise capital for reserve acquisitions or development of any undeveloped reserves. The partnership agreements of the partnerships do not authorize the partnerships to raise additional capital, whether debt or equity. Even if the partnership agreement of each partnership is amended to authorize additional capital, Pioneer Parent does not believe that the limited partners of the partnership would desire to contribute additional capital or to apply all cash flow to debt service, while remaining taxable on the related income. 35 48 - Fairness of Procedures. Pioneer USA considered the following factors in making its recommendation that the unaffiliated limited partners vote for the merger proposals for each partnership in which they own interests: - None of the partnerships has any employees or directors, and all of Pioneer USA's directors are officers of Pioneer USA and of Pioneer Parent. As a result, there has been no approval by directors who are not Pioneer Parent employees. - Pioneer USA did not retain an unaffiliated representative to act solely on behalf of the unaffiliated limited partners of each partnership for purposes of negotiating the terms of the merger of the partnership or preparing a report concerning the fairness of the merger of the partnership. - Since Pioneer USA is entitled to vote its limited partnership interests other than as described below, the transaction is not structured so that the approval of at least a majority of unaffiliated limited partnership interests is required. Pioneer USA intends to vote in favor of the transaction for the partnership interests it holds as a limited partner of each partnership as permitted by the partnership agreement of each partnership except in the following partnerships where the partnership agreement does not allow Pioneer USA to vote on the proposed transaction: Parker & Parsley 85-A, Ltd. Parker & Parsley 85-B, Ltd. Parker & Parsley Private Investment 85-A, Ltd Parker & Parsley Selected 85 Private Investment, Ltd Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 91-A, L.P. Parker & Parsley 91-B, L.P. Despite the foregoing factors, Pioneer USA believes each merger is procedurally fair to the unaffiliated limited partners of each partnership because: - Pioneer USA has been willing to consider any offer from third parties to purchase any partnership or the assets of any partnership since September 8, 1999, and will continue to do so, although Pioneer USA has not actively solicited any third party offers during this time; and - Pioneer Parent does not directly own any partnership interests in the partnerships. Pioneer Parent beneficially owns all of Pioneer USA's partnership interests in the partnerships. Pioneer USA does not beneficially own more than 5% of the outstanding limited partnership interests in any partnership, except Parker & Parsley 81-I, Ltd., Parker & Parsley 82-I, Ltd. and Parker & Parsley 82-III, Ltd. In those partnerships, Pioneer USA repurchased and now owns partnership interests representing the following beneficial ownership percentages: Parker & Parsley 81-I, Ltd.............................5.84% Parker & Parsley 82-I, Ltd............................11.71% Parker & Parsley 82-III, Ltd...........................5.97% Except as set forth above, none of Pioneer Parent, Pioneer USA, or, to the knowledge of Pioneer USA, any of their directors or executive officers, or any associate or subsidiary of Pioneer Parent, Pioneer USA beneficially owns any partnership interests of any partnership. As a result, Pioneer USA believes that neither it nor its affiliates have a meaningful voting percentage for any partnership, other than Parker & Parsley 81-I, Ltd., Parker & Parsley 82-I, Ltd. and Parker & Parsley 82-III, Ltd. See "Ownership of Partnership Interests" on page 71 of this document and Table 6 of Appendix A to this document. - Fairness of Transaction. Pioneer USA's board of directors determined that the merger of each partnership is advisable, fair to the unaffiliated limited partners of the partnership and in their best interests. In reaching this determination for each partnership, Pioneer USA's board of directors considered the following factors: - The form and amount of consideration offered to the partners of the partnership; - The objectives of the merger of the partnership, including providing liquidity to the partners; - Pioneer USA's right to consider third party offers; - The current market prices for oil and gas, including the increase in market prices, and the subsequent increase in merger value for the partnership, since the merger transaction was initially proposed in 1999; 36 49 - The historical market prices for oil and gas; - The net book value, going concern value and liquidation value of the partnership; - The purchase prices paid in previous repurchases by Pioneer USA; - The trading price of limited partnership interests in secondary market transactions; - The analysis of alternative transactions to the proposed merger of each partnership; and - The fairness opinion of Stanger, including the analyses conducted by Stanger in rendering the fairness opinion. RECOMMENDATION OF PIONEER USA On September 19, 2001, Pioneer USA's board of directors unanimously determined that the merger of each partnership is advisable, fair to the unaffiliated limited partners of the partnership, and in their best interests. PIONEER USA'S BOARD OF DIRECTORS RECOMMENDS THAT THE UNAFFILIATED LIMITED PARTNERS VOTE FOR THE MERGER PROPOSALS FOR EACH PARTNERSHIP IN WHICH THEY OWN INTERESTS. In making this recommendation, Pioneer USA's board of directors considered a number of factors, including (1) the reasons for the merger of each partnership set forth above in "Special Factors -- Reasons for the Merger of Each Partnership," such as the fairness opinion and analyses conducted by Stanger, and (2) the matters described under "Risk Factors" beginning on page 20 of this document, such as its conflicting interests. Pioneer USA's board of directors also considered the likelihood, benefits and costs of other transactions, including possible third party offers. Pioneer USA will consider any offers from third parties to purchase any partnership or its assets. See "The Merger of Each Partnership -- Third Party Offers" on page 58 of this document for a description of the procedures for these offers. In view of the numerous factors taken into consideration, Pioneer USA's board of directors did not consider it practical to, and did not attempt to, quantify or assign relative weights to the factors considered by it in reaching its decision to recommend the merger of each partnership. Rather, the board viewed its position and recommendation as being based on the total information presented to and considered by the board. FAIRNESS OPINION Pioneer USA, on behalf of each partnership, engaged Robert A. Stanger & Co., Inc., an independent financial advisory firm, to conduct an independent review and deliver a written opinion in connection with the merger of each partnership that the merger value for each partnership and the allocation of the merger value of the partnership (1) to the limited partners of the partnership as a group, (2) to the general partners of the partnership as a group, (3) to Pioneer USA as the managing or sole general partner of the partnership, (4) to the unaffiliated limited partners of the partnership as a group and (5) to the unaffiliated limited partners of the nonmanaging general partner, if any, of the partnership as a group, is fair to the unaffiliated limited partners of the partnership and the unaffiliated limited partners of the nonmanaging general partner, if any, of the partnership, from a financial point of view. The full text of Stanger's fairness opinion is attached as Appendix D to this document and is incorporated into this document by reference. Limited partners of each partnership are urged to read the opinion in its entirety. This summary of Stanger's fairness opinion is qualified in its entirety by reference to the full text of the opinion. Stanger has advised us that arriving at a fairness opinion is a complex analytical process not necessarily susceptible to partial analysis or amenable to summary description. For a description of all the material assumptions and qualifications to the fairness opinion, see "Qualifications to Fairness Opinion" on page 38 and "Assumptions" beginning on page 43. Except for assumptions described in "Assumptions" beginning on page 43, which Pioneer USA advised Stanger would be reasonable and appropriate in its view, neither Pioneer USA nor any partnership imposed any conditions or limitations on the scope of the investigation by Stanger or the methods and procedures to be followed by Stanger in rendering the fairness opinion. In addition, each partnership has agreed to indemnify Stanger against some liabilities arising out of Stanger's engagement to prepare and deliver its opinion. Upon consummation of the merger of the partnership, those indemnification obligations will become obligations of Pioneer USA. Experience of Stanger. Since its founding in 1978, Stanger has provided information, research, investment banking and consulting services to clients located throughout the United Sates, including major New York Stock Exchange member firms and insurance companies and over 70 companies engaged in the management and operation of partnerships. The investment banking activities of Stanger include financial advisory and fairness opinion services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. 37 50 Stanger was selected because of its experience in the valuation of businesses and their securities in connection with mergers, acquisitions, reorganizations and for estate, tax, corporate and other purposes, including the valuation of partnerships, partnership securities and the assets typically held through partnerships including oil and gas assets. Pioneer USA has previously engaged Stanger to provide financial advisory services in connection with proposed transactions between one or more of the partnerships and Pioneer Parent which were never consummated. Qualifications to Fairness Opinion. In the fairness opinion, Stanger specifically states that it was not requested to, and did not: - make any recommendations to Pioneer USA, any partnership or the limited partners of any partnership with respect to whether to approve or reject the merger of any partnership; - determine or negotiate the amount or form of the merger value for any partnership to be paid for limited partners' interests in the merger of the partnership; - offer the assets of any partnership for sale to any third party; - express any opinion as to: - the impact on Pioneer USA or the limited partners of any partnership that does not participate in the proposed merger transaction; - the tax consequences of the merger of any partnership for Pioneer USA, the nonmanaging general partner, if any, of the partnership or the limited partners of the partnership; - Pioneer USA's or Pioneer Parent's ability to finance their obligations under the merger agreement or the impact of a failure to obtain financing on the financial performance of Pioneer USA, Pioneer Parent or any partnership; - Pioneer USA's decision to estimate the reserve value of the oil and gas reserves of each partnership based upon the continued operation of the properties by Pioneer USA and the payment of overhead charges in accordance with existing operating agreements or the impact, if any, on the estimated value of each partnership's oil and gas reserves if Pioneer Parent and Pioneer USA determined to offer or operate the assets subject to revised operating agreements; - whether or not alternative methods of determining the merger value for each partnership would have also provided fair results or results substantially similar to the methodology used; - alternatives to the merger of each partnership, including the offering of such assets for sale to third party buyers; - the trading price of shares of Pioneer Parent common stock immediately following the closing of the merger of each partnership and the distribution of shares of Pioneer Parent common stock in connection with the merger of each partnership; - the fairness of the termination of the repurchase obligations of Pioneer USA with respect to some partnerships, which repurchase obligations require Pioneer USA to offer to repurchase limited partnership interests annually based upon a formula which in some circumstances, including the repurchase offers based upon December 31, 2000 oil and gas prices, result in repurchase offer prices above the market value for the reserves of any such partnership; or - any other terms of the merger of any partnership. Summary of Material Considered and Investigation Undertaken. Stanger's analysis of the merger of each partnership involved a review of the following information: - a draft of this preliminary document; - a draft of the merger agreement which Pioneer USA has indicated is substantially the form which will be executed in connection with the merger of each partnership; - financial statements of each partnership, including, if applicable, the partnership's Form 10-Q and Form 10-K, for the six months ended June 30, 2001 and for the years ended December 31, 2000, 1999 and 1998; - the reserve reports prepared by Pioneer Parent and Pioneer USA and the review by Williamson Petroleum Consultants, Inc., as of March 31, 2001, relating to the reserves of each partnership; 38 51 - the reserve reports prepared by Williamson Petroleum Consultants, Inc., as of December 31, 2000, relating to the reserves of each partnership; - calculations prepared by Pioneer Parent and Pioneer USA of the merger value per $1,000 of limited partner investment in each partnership; - Pioneer USA's analysis of other alternatives to the merger of each partnership, including going concern value, liquidation value, royalty trust and production payment; - estimates prepared by Pioneer Parent and Pioneer USA of the going concern value and liquidation value per $1,000 of limited partner investment in each partnership; - the financial statements of Pioneer Parent included in its Form 10-Q for the six months ended June 30, 2001 and its Form 10-K for the years ended December 31, 2000, 1999 and 1998; - pro forma financial data for Pioneer Parent assuming the completion of the proposed merger transaction; and - recent trading activity in shares of Pioneer Parent common stock. In the course of its analysis, Stanger conducted interviews of senior management personnel of Pioneer USA. During such interviews, Stanger and the senior management personnel reviewed the status of the merger of each partnership, the reserve pricing and related value estimates, the estimated timing of the merger of each partnership and other matters. Stanger reviewed estimates of the merger value, going-concern value, and liquidation value prepared by Pioneer USA with respect to each partnership. In addition, Stanger reviewed secondary market prices, as tracked by Stanger, for limited partnership interests in each partnership along with tender offers received by limited partners as derived from data provided by Pioneer USA. Stanger's analysis is summarized below. Review of Merger Value for Each Partnership. Stanger reviewed the calculation of the merger value for each partnership prepared by Pioneer USA. Stanger observed that such calculation includes the reserve value, as described below, and other current assets as of March 31, 2001, as reduced by other current liabilities as of March 31, 2001, less the partnership's pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution mailed on July 13, 2001, by the partnership to its partners. Stanger reviewed the balance sheet of each partnership as of March 31, 2001 as prepared by Pioneer USA, and reconciled the current assets and current liabilities on such financial statements to the balances included in the merger value calculation for each partnership. Stanger reviewed the summary reserve reports for each partnership prepared by Pioneer Parent and Pioneer USA as reviewed by Williamson Petroleum Consultants, Inc. as of March 31, 2001. Stanger noted that the summary reserve report was prepared based upon the following pricing case: (1) a five-year NYMEX futures price for oil and gas as of March 30, 2001, with prices held constant after year five at the year five price and (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes. For 2001, the oil and gas prices were based on the average NYMEX futures price for the nine-month period beginning on April 1, 2001 and ending December 31, 2001. The standard industry adjustments reflect oil quality, BTU content, oil and gas gathering and transportation costs, and gas processing costs and shrinkage. Stanger further observed that the summary reserve report utilized a discount rate of 10.0% and resulted in a per barrel of oil equivalent, or BOE, value of the reserves for each of the partnerships ranging from $3.52 to $4.60. However, Stanger observed that such properties are long-lived, generally low-volume properties, not operated by any of the partnerships, and are subject to overhead charges by the operator, Pioneer USA. In the course of its engagement, Stanger reviewed selected comparable transactions in the BOE value range described above for long-lived, generally low-volume properties. Such transactions, including some transactions involving other Pioneer USA affiliates, provided a range of value per BOE of $2.97 to 5.08 and an average of $4.00. Stanger, in connection with its engagement, interviewed acquisitions personnel at seven oil and gas companies regarding targeted pricing case ranges and discount rate ranges in order to assess the reasonableness of the pricing case and discount rates utilized to establish the reserve value for the partnerships. With respect to the pricing case ranges, Stanger observed a low pricing case range pursuant to the survey of $22 per barrel of oil and $3.50 per Mcf of gas, held flat for the life of the reserves to a high pricing case range of NYMEX strip pricing (plus $2 per barrel of oil) and NYMEX strip pricing for gas, held flat after five years for the life of the reserves. With respect to discount rates, Stanger observed a range of discount rates from a low of 9% to 13% applied generally to a low range pricing case to a high range 39 52 of 15% to 20%, applied generally to a high range pricing case. Stanger concluded that the pricing case and discount rates utilized to establish the merger value for each partnership fall within the ranges established in interviews with acquisition professionals. Going Concern Value. Stanger reviewed the going concern value calculation prepared for each partnership by Pioneer USA. The going concern value was based upon: - The sum of (1) the estimated net cash flow from sale of the reserves during a 10-year operating period and (2) the estimated residual value from the sale of the remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation; less - The cash distributions on July 13, 2001 by the partnership to its partners; and - Partnership level general and administrative expenses, calculated as follows and, consistent with the calculation of 2000 and 1999 expenses, generally representing the maximum expense percentages permitted under the partnership agreements: - The partnership agreement for each of Parker & Parsley 81-I, Ltd., Parker & Parsley 81-II, Ltd., Parker & Parsley 82-I, Ltd., Parker & Parsley 82-II, Ltd. and Parker & Parsley 82-III, Ltd. permits Pioneer USA to allocate to the partnership (1) general and administrative expenses and (2) all expenses directly attributable to the partnership as a result of fees or charges by parties other than Pioneer USA or its affiliates, including legal, auditing and engineering fees. However, for purposes of clause (1) and for administrative ease and to the benefit of each of those partnerships, Pioneer USA allocates to each of those partnerships general and administrative expenses based on 3% of the revenues of the partnership. - The partnership agreement for each of Parker & Parsley 83-A, Ltd. and Parker & Parsley 83-B, Ltd. permits Pioneer USA to allocate to the partnership (1) general and administrative expenses in an annual amount not to exceed the sum of 2% of the initial partner capital for the partnership and 2.25% of the drilling and completion expenses, of which there are none, and (2) all expenses directly attributable to the partnership as a result of fees or charges by parties other than Pioneer USA or its affiliates, including legal, auditing and engineering fees. However, for purposes of clause (1) and for administrative ease and to the benefit of each of those partnerships, Pioneer USA allocates to each of those partnerships general and administrative expenses based on 3% of the revenues of the partnership. - The partnership agreement for Parker & Parsley 84-A, Ltd. permits Pioneer USA to allocate to the partnership (1) general and administrative expenses in an annual amount not to exceed the sum of 3.25% of the revenues of the partnership and 2.25% of the drilling and completion expenses, of which there are none, and (2) all expenses directly attributable to the partnership as a result of fees or charges by parties other than Pioneer USA or its affiliates, including legal, auditing and engineering fees. However, for purposes of clause (1) and for administrative ease and to the benefit of the partnership, Pioneer USA allocates to the partnership general and administrative expenses based on 3% of the revenues of the partnership. - The partnership agreement for each of the following partnerships permits Pioneer USA to allocate to the partnership general and administrative expenses, including all expenses directly attributable to the partnership as a result of fees or charges by parties other than Pioneer USA or its affiliates, such as legal, auditing and engineering fees, in an annual amount not to exceed 2% of the revenues of the partnership. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley Selected 85 Private Investment, Ltd. Parker & Parsley Private Investment 86, Ltd. - The partnership agreement for each of the following partnerships permits Pioneer USA to allocate to the partnership general and administrative expenses, including all expenses directly attributable to the partnership as a result of fees or charges by parties other than Pioneer USA or its affiliates, such as legal, auditing and engineering fees, in an annual amount not to exceed 3% of the revenues of the partnership. Parker & Parsley 85-A, Ltd. Parker & Parsley 85-B, Ltd. Parker & Parsley 86-A, Ltd. Parker & Parsley 86-B, Ltd. Parker & Parsley 86-C, Ltd. Parker & Parsley 87-A Conv., Ltd. 40 53 Parker & Parsley 87-A, Ltd. Parker & Parsley 87-B Conv., Ltd. Parker & Parsley 87-B, Ltd. Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley Private Investment 87, Ltd. Parker & Parsley 88-A Conv., L.P. Parker & Parsley 88-A, L.P. Parker & Parsley 88-B Conv., L.P. Parker & Parsley 88-B, L.P. Parker & Parsley 88-C Conv., L.P. Parker & Parsley 88-C, L.P. Parker & Parsley Producing Properties 88-A, L.P. Parker & Parsley Private Investment 88, L.P. - The partnership agreement for each of the following partnerships permits Pioneer USA to allocate to the partnership (1) general and administrative expenses in an annual amount not to exceed 3% of the revenues of the partnership, and (2) all expenses directly attributable to the partnership as a result of fees or charges by parties other than Pioneer USA or its affiliates, including legal, auditing and engineering fees. Parker & Parsley 89-A Conv., L.P. Parker & Parsley 89-A, L.P. Parker & Parsley 89-B Conv., L.P. Parker & Parsley 89-B, L.P. Parker & Parsley 90-A Conv., L.P. Parker & Parsley 90-A, L.P. Parker & Parsley 90-B Conv., L.P. Parker & Parsley 90-B, L.P. Parker & Parsley 90-C Conv., L.P. Parker & Parsley 90-C, L.P. Parker & Parsley 91-A, L.P. Parker & Parsley 91-B, L.P. - The partnership agreement for each of the following partnerships permits Pioneer USA to allocate to the partnership (1) general and administrative expenses in an annual amount not to exceed 5% of the revenues of the partnership, and (2) all expenses directly attributable to the partnership as a result of fees or charges by parties other than Pioneer USA or its affiliates, including legal, auditing and engineering fees. However, for purposes of clause (1) and for administrative ease and to the benefit of each of the partnerships, Pioneer USA allocates to the partnership general and administrative expenses based on 3% of the revenues of the partnership. Parker & Parsley Private Investment 89, L.P. Parker & Parsley Private Investment 90, L.P. Parker & Parsley 90 Spraberry Private Development, L.P. Stanger observed that the going concern value of each partnership was adjusted for the March 31, 2001 working capital balance less the distribution mailed on July 13, 2001 and that such going concern value ranged from 4.7% to 9.8% less than the merger value for each partnership. See the supplemental information table on the second page of the supplement for each partnership for its merger value and its going concern value, in each case per $1,000 limited partner investment. Liquidation Value. Stanger reviewed the liquidation value calculation prepared for each partnership by Pioneer USA. Such liquidation value was based upon the sale of the reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the estimated expenses and fees of the mergers of all of the partnerships and (B) 3% of the partnership's reserve value, and (2) the cash distributions on July 13, 2001 by the partnership to its partners. The liquidation expenses represent the estimated costs to retain an investment banker or broker to sell the assets of each partnership and the legal and other closing costs associated with such transaction. Stanger observed that such merger expenses are intended to reflect Pioneer USA's estimate of the cost associated with brokers' commissions on asset sales and the additional wind-down costs of the partnership. Stanger observed that the liquidation value for each partnership ranged from 2.7% to 3.0% less than the merger value for each 41 54 partnership. See the supplemental information table on the second page of the supplement for each partnership for its merger value and its liquidation value, in each case per $1,000 limited partner investment. Secondary Market Prices. To determine the most up-to-date secondary market prices, Stanger reviewed the secondary market prices for units of limited partnership interests in each of the partnerships during the 12 months ended June 30, 2001, collected from data maintained on partnerships by Stanger. Stanger observed that secondary market transactions were reported for 24 of the partnerships during such period. Stanger observed that for all partnerships except Parker & Parsley Producing Properties 87-A, Ltd., the weighted average secondary market price on a per $1,000 original investment basis was less than the merger value per $1,000 original investment. For such other partnerships, the range of discount to the merger value per $1,000 investment was 7.7% to 55.5%, averaging 28.6%. For Parker & Parsley Producing Properties 87-A, Ltd., Stanger observed that only one transaction involving $10,000 of original investment (20 units) was at a price in excess of the merger value per $1,000 of original investment. All other secondary market transactions for Parker & Parsley Producing Properties 87-A, Ltd. were reported at prices below the merger value. Stanger also observed secondary market transactions at prices in excess of the merger value for two additional partnerships. Secondary market firms reported a single transaction during the twelve months ended June 30, 2001 for Parker & Parsley 82-II, Ltd. and Parker & Parsley 84-A, Ltd. at a price in excess of merger value. All other transactions reported for such partnerships were at amounts less than the merger value during the twelve months ended June 30, 2001. Stanger also reviewed secondary market data obtained by Pioneer USA from Partnership Spectrum. Stanger observed that such data included partnerships which reported a secondary market transaction price in excess of the high-end transaction price Stanger observed in its data. In all cases, except Parker & Parsley 82-II, Ltd., Parker & Parsley 84-A, Ltd. and Parker & Parsley Producing Properties 87-A, Ltd., such high-end range was lower than the merger value. Prices in the secondary market are based on market prices at the time of the secondary market transaction, which prices may be lower than prices prevailing at June 30, 2001, or as of the date of mailing this document. Selected Tender Offers. Stanger observed that Pioneer USA reported unsolicited tender offers from unaffiliated third parties for less than 5% of the interests in the following partnerships during the period June 1998 through July 2001. Stanger observed that the tender offers and related merger value per limited partnership interest for each of those partnerships were as follows:
MERGER VALUE TENDER OFFER DISCOUNT TO MERGER PARTNERSHIP (PER $1,000 INVESTMENT) (PER $1,000 INVESTMENT) VALUE ----------- ----------------------- ----------------------- ------------------ Parker & Parsley 82-II, Ltd................... $103.27 $13.75 (86.7%) Parker & Parsley 82-III, Ltd.................. 121.71 26.25 (78.4%) Parker & Parsley 83-A, Ltd.(a)................ 142.17 40.00 to 75.00 (47.2%) to (71.9%) Parker & Parsley 83-B, Ltd.(a)................ 159.87 50.00 to 85.00 (46.8%) to (68.7%) Parker & Parsley 84-A, Ltd.(a)................ 199.06 60.00 to 110.00 (44.7%) to (69.9%) Parker & Parsley 85-A, Ltd.................... 137.90 80.00 (42.0%) Parker & Parsley 86-A, Ltd.................... 170.04 40.00 (76.5%) Parker & Parsley 86-B, Ltd.(a)................ 230.38 110.00 to 115.00 (50.1%) to (52.3%) Parker & Parsley 86-C, Ltd.(a)................ 165.38 65.00 to 67.50 (59.2%) to (60.7%) Parker & Parsley 87-A, Ltd.(a)................ 199.53 90.00 to 105.00 (47.4%) to (54.9%) Parker & Parsley 87-B, Ltd.(a)................ 207.86 60.00 to 110.00 (47.1%) to (71.1%) Parker & Parsley 88-A, L.P.................... 247.13 80.00 (67.6%) Parker & Parsley 88-B, L.P.................... 341.24 50.00 (85.3%) Parker & Parsley Private Investment 89, L.P......................................... 284.67 162.50 (42.9%) Parker & Parsley 90-B, L.P.(a)................ 273.11 102.50 to 160.00 (41.4%) to (62.5%) Parker & Parsley 90-C, L.P.(a)................ 247.05 30.00 to 40.00 (83.8%) to (87.9%) Parker & Parsley 90 Spraberry Private Dev., L.P......................................... 310.90 162.50 (47.7%)
--------------- (a) More than one tender offer for partnership interests was made. Amounts shown represent the range of tender offer prices. Stanger observed that the above tender offers represent a discount to the merger value for each of those partnerships of 41.4% to 87.9%. Stanger also observed that tender offers for limited partnership securities are generally at prices which represent a substantial discount to the underlying value of the assets held by such partnerships. Furthermore, the tender 42 55 offer prices are based on oil prices prevailing at the time of the tender offer, which prices may have been lower than oil prices prevailing at March 30, 2001 or as of the date of mailing this document. Repurchase Offers. Stanger observed that for each of the six partnerships listed below, which Stanger calls the repurchase partnerships, Pioneer USA is required under the partnership agreement for the partnership to offer to repurchase units of limited partnership interests in the partnership annually at a formula price based upon the December 31 year end reserve report. Stanger observed that the repurchase offer pricing at December 31, 2000 tends to overstate the value of units of the repurchase partnerships due primarily to the oil and gas prices in effect on such date and the effect of such pricing on the cash flows and recoverable reserves. Stanger observed that the repurchase offers for 2000 for the repurchase partnerships are at premiums to the merger value ranging from 24.6% to 65.6% as follows:
PER $1,000 ORIGINAL INVESTMENT ----------------------------------------- MERGER VALUE REPURCHASE OFFER PREMIUM ------------ ---------------- ------- Parker & Parsley 82-I, Ltd.................................. $ 83.32 $137.97 65.6% Parker & Parsley 82-II, Ltd................................. 103.27 133.72 29.5% Parker & Parsley 82-III, Ltd................................ 121.71 151.60 24.6% Parker & Parsley 83-A, Ltd.................................. 142.17 196.67 38.3% Parker & Parsley 83-B, Ltd.................................. 159.87 210.15 31.5% Parker & Parsley 84-A, Ltd.................................. 199.06 267.03 34.1%
Stanger observed that the repurchase rights may be exercised only once a year and that a limited partner may exercise its repurchase right by delivering a written request to Pioneer USA no later than March 31 of each year. Pioneer USA advised Stanger that on or before May 31 of each year, Pioneer USA must notify each limited partner who has exercised its repurchase right of the amount of limited partnership interests to be repurchased and the method of calculating the repurchase price. Pioneer USA advised Stanger that the aggregate amount of limited partnership interests required to be repurchased in any one year is limited to $100,000 per partnership. A repurchase price is calculated by multiplying: - the present value of the estimated future net revenues, calculated using a discount rate equal to prime plus 1% as of December 31 of each year, from a partnership's estimated reserves, as determined by independent petroleum consultants; by - 66 2/3%. Stanger advised that each limited partner who has exercised its repurchase right has 60 days to accept Pioneer USA's repurchase offer and that Pioneer USA must pay the repurchase price to each limited partner who accepts the repurchase offer within 30 days after acceptance. Stanger further advised Pioneer USA and each repurchase partnership that no adjustment was made to the merger value offered to the repurchase partnership to reflect the repurchase offer obligation and Stanger's opinion does not include an opinion as to the fairness of the termination of Pioneer USA's repurchase obligation. Assumptions. Pioneer Parent and Pioneer USA advised Stanger that the oil and gas properties owned by each partnership are subject to operating agreements with Pioneer USA and that: - such operating agreements provide for the payment of overhead charges and that such charges are reasonable compared with amounts charged for similar services by third party operators; - except for cause, such operating agreements do not provide for the termination of Pioneer USA as operator; and - such operating agreements do not provide for the revision of the overhead charges, except as escalated under the terms of such operating agreements. Furthermore, Pioneer Parent and Pioneer USA advised Stanger that if each partnership's reserves were offered for sale to a third party, a condition of such sale would be that the oil and gas reserves would continue to be subject to the operating agreements with Pioneer USA which provide for the payment of overhead charges, and that it would be appropriate to assume, when estimating the value of such reserves, that such charges would continue. In addition, Pioneer Parent and Pioneer USA advised Stanger that the reserve value and working capital balance of each partnership has been properly allocated between the general partners and the limited partners of each partnership in accordance with the partnership agreement with respect to a liquidation. 43 56 Stanger did not conduct any engineering studies and has relied on estimates of Pioneer Parent and Pioneer USA with respect to oil and gas reserve volumes, prices, operating costs and overhead charges with respect to the reserve value estimates. Furthermore, Stanger has relied upon the review by Williamson of the summary reserve reports as of March 31, 2001. Stanger also relied on the assurance of Pioneer Parent, Pioneer USA and each partnership that: - the summary reserve report reviewed by Williamson Petroleum Consultants, Inc. as of March 31, 2001, and provided to Stanger was in the judgment of Pioneer USA and each partnership reasonably prepared on bases consistent with actual historical experience and reflect their best currently available estimates and good faith judgments; - there are no estimates of costs to remediate environmental conditions included in the reserve analysis; - any historical financial data, balance sheet data, merger value analyses, going concern value analyses and liquidation value analyses are accurate and complete in all material respects; - all allocations included in the calculations of merger values, going concern values and liquidation values have been made in accordance with the partnership agreement of each partnership; - no material changes have occurred in the information reviewed or in the value of the oil and gas reserves or working capital balances as of March 31, 2001, of each partnership between the date the information was provided to Stanger and the date of Stanger's opinion; - the relative ownership interests of (1) the limited partners of each partnership, (2) the unaffiliated limited partners of each partnership, (3) the general partners of each partnership, (4) the unaffiliated limited partners of the nonmanaging general partner, if any, of each partnership and (5) Pioneer USA, as the managing or sole general partner of each partnership, is accurately included in accordance with the partnership agreement for each partnership in the analyses provided to Stanger by Pioneer USA; - neither Pioneer Parent or any of its affiliates has during the 30 days prior to the date hereof commenced or continued a share repurchase program or similar transaction which could affect the price of shares of Pioneer Parent common stock to be used in the proposed merger transaction; and - Pioneer Parent, Pioneer USA and each partnership are not aware of any information or facts regarding the partnership, the oil and gas properties, the reserve analysis or the working capital balances of the partnership that would cause the information supplied to Stanger to be incomplete or misleading in any material respect. Stanger's opinion is based upon business, economic, oil and gas market and other conditions as of the date of its analysis and addresses the merger value for each partnership in the context of information available as of the date of Stanger's analysis. Events occurring after the date of Stanger's analysis could affect the value of the assets of each partnership or the assumptions used in the preparation of Stanger's fairness opinion. Conclusions. Stanger concluded that, based upon and subject to its analysis, assumptions, limitations and qualifications cited in its opinion, and as of the date of the fairness opinion, the merger value for each partnership and the allocation of the merger value of the partnership (1) to the limited partners of the partnership as a group, (2) to the general partners of the partnership as a group, (3) to Pioneer USA as the managing or sole general partner of the partnership, (4) to the unaffiliated limited partners of the partnership as a group and (5) to the unaffiliated limited partners of the nonmanaging general partner, if any, of the partnership as a group, is fair to the unaffiliated limited partners of the partnership and the unaffiliated limited partners of the nonmanaging general partner, if any, of the partnership, from a financial point of view. Stanger's fairness opinion is dated August 20, 2001. Compensation and Material Relationships. Stanger has been paid a total fee of $350,000 in connection with the rendering of the fairness opinion. Such fee was not conditioned on Stanger's findings and is payable whether or not the merger of each partnership is consummated. In addition, Stanger will be reimbursed for all reasonable out-of-pocket expenses, including legal fees, and will be indemnified against some liabilities, including some liabilities under the securities laws. To the extent that such indemnification includes liabilities arising under the federal securities laws, it may not be enforceable as it may be determined to be against public policy. During the past two years, Pioneer USA engaged Stanger to render financial advisory services in connection with proposed transactions which were withdrawn and never consummated. In connection with such assignments Stanger was paid fees aggregating $175,000. 44 57 SUMMARY RESERVE REPORT Pioneer USA engaged Williamson Petroleum Consultants, Inc., which we call Williamson, an independent petroleum engineering consulting firm based in Midland, Texas, to review a summary reserve report of the property interests of each of the partnerships as of March 31, 2001. THE FULL TEXT OF THE REVIEW OF THE SUMMARY RESERVE REPORT BY WILLIAMSON PETROLEUM CONSULTANTS, INC. EFFECTIVE AS OF MARCH 31, 2001, IS ATTACHED AS APPENDIX B. WE URGE YOU TO READ IT CAREFULLY IN ITS ENTIRETY. Qualifications and Method of Selection. Williamson is engaged solely in the business of petroleum evaluation and engineering studies for public and private oil and gas companies. Williamson is widely recognized in its field. Williamson is an independent consulting firm as provided in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. Pioneer USA engaged Williamson based upon Pioneer USA's assessment of their professional reputations and qualifications, capabilities, experience and responsiveness. In addition, Williamson is the independent petroleum engineering firm most familiar with the properties in which each partnership has interests and has prepared the annual independent reserve report for each partnership's reserves since the inception of each partnership. Summary of Procedures, Scope and Findings. Williamson reviewed the calculations of the estimated total net estimated reserves for each partnership and the present value of the estimated future net revenues from the estimated reserves for each partnership as of March 31, 2001, based on the following parameters provided by Pioneer USA: (1) a five-year NYMEX futures price for oil and gas as of March 30, 2001 with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 10.0% discount rate. For 2001, the oil and gas prices were based on the average NYMEX futures price for the nine-month period beginning on April 1, 2001 and ending December 31, 2001. Williamson's estimated total net estimated reserves and the present value of the estimated future net revenues from the estimated reserves for each partnership are set forth in the exhibits to the summary reserve report attached as Appendix B to this document. Pioneer Parent determined the amount of Pioneer Parent common stock to be offered. Williamson did not opine on the fairness of the transaction. In preparing its summary reserve report, Williamson assumed the accuracy and completeness of all information provided by Pioneer USA or information which was publicly available and did not attempt to independently verify such information. Williamson did not make field inspections or judgments relative to environmental or other legal liabilities. Except as described in this document, Pioneer USA did not instruct Williamson as to the pricing, cost or other economic parameters or methods or the assessment of reserves characteristics, nor did it limit the scope of Williamson's investigation for purposes of preparing its summary reserve report. Pioneer USA provided Williamson with all evaluation data with respect to interests, reversionary status, oil and gas prices, gas categories, gas contract terms, operating expenses, investments, salvage values, abandonment costs, net profit interests, well information and current operating conditions for Williamson's use in determining each partnership's reserves. Williamson used production data provided by Pioneer USA, and where information was not provided by Pioneer USA, Williamson used production data from public records. Williamson prepared its own reserve estimates of the property interests. Williamson's review included testing and evaluating the reserve information for all of the properties of each partnership. The review is more comprehensive than an audit, which involves testing and evaluating the reserve information of a representative subgroup of properties of each partnership. Prior Material Relationships. Williamson has estimated total proved reserves and the present value of estimated future revenues from those reserves for each of the partnerships since their respective inceptions. In addition, Pioneer USA engaged Williamson to prepare a summary reserve report in connection with a proposed transaction in 1999, similar to the one described in this document, which was withdrawn and never consummated. Pioneer USA and its affiliates have paid $112,700 over the past two years to Williamson. Neither Williamson nor any of its personnel has any direct or indirect interest in Pioneer USA or any of the partnerships, and Williamson's compensation is not contingent upon the results of its summary reserve report. 45 58 ALTERNATIVE TRANSACTIONS TO THE MERGER OF EACH PARTNERSHIP We considered the following alternative types of transactions before selecting the merger transaction described in this document. As discussed below, we believe that the merger of each partnership is the best available alternative for each partnership to maximize the consideration to the limited partners. Comparison of the Merger of Each Partnership to Continuing Operations. Because each partnership's properties are mature, producing properties, we believe that production from those properties will continue to decline at the rate predicted in the partnership's oil and gas engineering reserve reports. Accordingly, cash distributions from each partnership will also decline, subject to variation for changes in oil and gas prices. The marginal benefit of continuing operations of each partnership is offset by the general and administrative costs related to continuing operations. See "Special Factors -- Reasons for the Merger of Each Partnership" beginning on page 34 of this document. We also believe there is a substantial advantage in receiving the liquidating distribution at present in the form of Pioneer Parent common stock, rather than continuing to receive decreasing levels of cash distributions over a long period of time. We believe that the merger value for each partnership is higher than the net present value of estimated future cash distributions to the limited partners from continued operations because the merger value has not been reduced for the reimbursement of Pioneer USA's general and administrative expenses allocable to the partnership. In addition, although future oil and gas prices could be higher than the prices on March 30, 2001 which were used in calculating the merger value for each partnership, continued operations over a long period of time subject the limited partners of each partnership to the risk of receiving lower levels of cash distributions if oil and gas prices over this period are lower on average than those used in preparing the estimates of cash distributions from continued operations. Continued operations also subject the limited partners of each partnership to possible changes in costs or need for workover or similar significant remedial work on each partnership's properties. In contrast, the Pioneer Parent common stock is a liquid tradeable security which can be sold and redeployed in other investments. The Pioneer Parent common stock provides the limited partners of each partnership the opportunity to participate in a larger entity having more diversified producing reserves and other oil and gas properties, with the resulting spreading of risks. We expect that any nonparticipating partnership will continue operations and will produce its reserves until depletion with steadily decreasing rates of cash flow and, as a result, decreasing cash distributions. Comparison of the Merger of Each Partnership to Master Limited Partnership. We considered accomplishing the consolidation of each partnership through a master limited partnership, pursuant to which the partnership interests of the limited partners of the partnership would be exchanged for interests in the master limited partnership. However, we believe each partnership's oil and gas properties are not of sufficient size, individually or in the aggregate with the other partnerships, to attract new capital through a master limited partnership. In addition, the partnership interests in a master limited partnership might not be traded on a national stock exchange or in any other significant market. Some master limited partnership interests might be sold from time to time in private or over-the-counter transactions, but the prices would likely reflect a discount for illiquidity. As a result, we believe a master limited partnership would not provide the limited partners with immediate and complete liquidity for their investment in each partnership. Finally, a master limited partnership would still be burdened with general and administrative expenses, which would reduce any cash distributions paid to the partners of the master limited partnership. The merger value for each partnership reflects a liquidation value and has not been reduced for any reimbursement of Pioneer USA's general and administrative expenses allocable to the partnership. Comparison of the Merger of Each Partnership to Royalty Trust. We also considered a royalty trust, pursuant to which the partnership interests of each partnership would be exchanged for beneficial ownership interests in the trust. Like the master limited partnership alternative discussed above, we believe each partnership's oil and gas properties are not of sufficient size, individually or in the aggregate with the other partnerships, to attract new capital through a royalty trust. In addition, the beneficial ownership interests in a royalty trust might not be publicly traded in a significant market. As a result, this alternative was not selected because we believe it would not result in immediate and complete liquidity for the limited partners' investments in any partnership. Finally, a royalty trust would still be burdened with general and administrative expenses, which would reduce any cash distributions paid to the beneficiaries of the royalty trust. The merger value for each partnership reflects a liquidation value and has not been reduced for any reimbursement of Pioneer USA's general and administrative expenses allocable to the partnership. Comparison of the Merger of Each Partnership to Production Payment. We also considered whether each partnership would benefit from attempting to sell a production payment against its future oil and gas production in exchange for cash. Like the master limited partnership and royalty trust alternatives discussed above, we believe each partnership's oil and gas properties are not of a sufficient size, individually or in the aggregate with the other partnerships, 46 59 to attract new capital from lenders or investors. In addition, lenders or investors that provide production payment alternatives will not advance funds against 100% of future oil and gas production, and typically limit any production payment transaction to less than 70% of estimated future oil and gas production. As a result, this alternative was not selected because we believe it would not provide the limited partners with immediate and complete liquidity for their investment in each partnership. Even with a production payment transaction, each partnership would continue to be burdened with general and administrative expenses which would reduce any cash distributions paid to the limited partners. The merger value for each partnership reflects a liquidation value and has not been reduced for any reimbursement of Pioneer USA's general and administrative expenses allocable to the partnership. Comparison of the Merger of Each Partnership to Negotiated Sale. We also considered whether each partnership would benefit from attempting to sell its property interests in negotiated transactions. Buyers would be purchasing the partnership's property interests which they would neither control nor operate. A portion of the properties in which each partnership owns interests would continue to be operated by Pioneer USA because Pioneer USA controls other interests in fields in which the partnership's properties are located. Because of Pioneer USA's control of such properties, Pioneer Parent and Pioneer USA believe Pioneer Parent is the party in the position to pay the highest price for such interests and the one most likely to do so. In contrast, Pioneer USA's control of such properties could negatively affect the amount a third party is willing to pay and the overall interest of third parties in buying such properties. In addition, sale of each partnership's properties on a direct basis often involves substantial periods of time for due diligence, negotiation and execution of agreements and closings, often with different purchasers for different properties. Satisfying due diligence requests requires large amounts of time to create and supervise data rooms or disseminate data to possible purchasers, plus the time needed to deal directly with multiple prospective purchasers. Furthermore, some issues, such as environmental and title matters, may come to light in the late stages of a negotiated sale, which may delay or preclude the consummation of the sale. The transaction costs for offering properties in a negotiated sale could be substantial, and often are higher than other means of sale. Those costs include: - preparing and disseminating information on properties to be offered; - soliciting attendance by prospective purchasers; and - screening and qualifying purchasers. In a third party sale, we expect that each partnership would have to pay its own expenses or that the price would be reduced to take the expenses into account. Based on the factors described above, we decided to issue an invitation for third party bids rather than conduct a full auction. That is, in September 1999 we established a price and publicly announced that we will consider third party offers to purchase any partnership or its assets at prices that are higher than the 1999 merger value for such partnership. We have repeated our willingness to consider third party offers in connection with the merger of each partnership we now propose, so long as the prices offered exceed those we are offering. We believe this process would result in a better price to the limited partners than if we merely offered the partnership or its assets for sale at any price. Pioneer Parent has the right to match or top any third party offer. In addition, any such offer would be subject to our right to continue operation of the properties. See "The Merger of Each Partnership -- Third Party Offers" on page 58. Although we received some preliminary indications of interest from third parties during the last quarter of 1999 and from a third party in July 2001, none of those third parties has ever made a formal bid for any partnership or its assets. In May and June of 2001, we were contacted by several parties interested in purchasing partnership interests from the limited partners of certain partnerships. See "Special Factors -- Background of the Merger of Each Partnership" on page 27. Other than announcing that we will consider third party offers for any partnership or its assets, we have not actively solicited bids from third parties. 47 60 FORWARD-LOOKING STATEMENTS This document includes "forward-looking statements" as defined by the Securities and Exchange Commission. These statements concern Pioneer Parent's, Pioneer USA's and each partnership's plans, expectations and objectives for future operations. All statements, other than statements of historical facts, included in this document that address activities, events or developments that Pioneer Parent, Pioneer USA and each partnership expect, believe or anticipate will or may occur in the future are forward-looking statements and include the following: - completion of the proposed merger of each partnership; - reserve estimates; - future production of oil and gas; and - future financial performance. These forward-looking statements are based on assumptions, which Pioneer Parent, Pioneer USA and each partnership believe are reasonable, but which are open to a wide range of uncertainties and business risks. Factors that could cause actual results to differ materially from those anticipated are discussed in (1) "Risk Factors" beginning on page 20 of this document, (2) periodic filings with the Securities and Exchange Commission, including Annual Reports on Form 10-K for the year ended December 31, 2000, for Pioneer Parent and each reporting partnership, and (3) "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year ended December 31, 2000 included in the supplement to this document for each nonreporting partnership. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this document regarding each company's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of these risks and uncertainties, which could cause actual results to differ from those contained in the forward looking statements, see "Risk Factors" beginning on page 20 of this document. 48 61 METHOD OF DETERMINING MERGER VALUE FOR EACH PARTNERSHIP AND AMOUNT OF PIONEER PARENT COMMON STOCK OFFERED Pioneer Parent and Pioneer USA have agreed to a merger value for each partnership for purposes of the merger of the partnership. The method of determining the merger value for each partnership was not determined by arm's-length negotiations. See "Risk Factors -- You Were Not Independently Represented in Establishing the Terms of the Merger of Each Partnership" on page 21 and "Interests of Pioneer Parent, Pioneer USA and Their Directors and Officers" on page 70. The calculations made by Pioneer Parent and Pioneer USA in determining the merger values were based primarily on data maintained by Pioneer USA in conjunction with its responsibilities as operator of the properties and keeper of the books and records of the partnerships. In March 2001, Pioneer Parent and Pioneer USA agreed to use March 31, 2001 to determine the merger value for each partnership and to base the number of shares of Pioneer Parent common stock to be offered on the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date of the special meeting for each partnership. On July 27, 2001, it was agreed that each participating partnership would bear its pro rata portion of the merger expenses and that Pioneer Parent would bear the merger expenses of the nonparticipating partnerships and the merger expenses in excess of $2,000,000. The method of determining the merger value was finalized on August 17, 2001, when Pioneer USA received the summary letter of Williamson Petroleum Consultants, Inc. reviewing estimates of each partnership's reserves. For purposes of illustration in this document, we have calculated the number of shares to be issued based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. Prior to the date of the special meeting for each partnership, we will update the number of shares to be issued using the actual average closing price of Pioneer Parent common stock for the ten trading days ending three business days before the initial date scheduled for the special meeting. Neither Pioneer Parent nor Pioneer USA will adjust any of the other components of the merger value for any partnership. COMPONENTS OF MERGER VALUE FOR EACH PARTNERSHIP Pioneer Parent and Pioneer USA calculated the merger value assigned to each partnership as follows: - Pioneer Parent and Pioneer USA agreed to use the volumes of the partnership's estimated reserves as of March 31, 2001, as taken from the summary reserve report reviewed by Williamson Petroleum Consultants, Inc. as of March 31, 2001. - Pioneer Parent and Pioneer USA agreed to use the present value of estimated future net revenues for each partnership from the estimated reserves for each partnership at March 31, 2001, as reviewed by Williamson Petroleum Consultants, Inc. in its summary reserve report dated August 17, 2001. In its review, Williamson Petroleum Consultants, Inc. evaluated the methods and procedures used by Pioneer USA in the preparation of Pioneer USA's estimates of reserves and associated future net revenue and rendered its opinion that the estimates are reasonable in the aggregate and prepared in accordance with generally accepted petroleum engineering and evaluation principles. See Appendix B to this document. The reserve value component of the merger value for each partnership is also set forth in Table 16 of Appendix A to this document. Pioneer Parent and Pioneer USA instructed Williamson to use the following parameters in calculating the present value of estimated future net revenues: (1) a five-year NYMEX futures price for oil and gas as of March 30, 2001, with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a discount rate of 10.0%. For 2001, the oil and gas prices were based on the average NYMEX futures price for the nine-month period beginning on April 1, 2001 and ending December 31, 2001. See the table on page 6 for the NYMEX futures prices. Pioneer Parent and Pioneer USA believe that the five-year NYMEX futures prices provide a reasonable benchmark on the outlook for energy prices and are regularly used by financial markets, industry participants, and lenders in evaluating transactions. - The standard industry price adjustments include: (1) the effects of oil quality; (2) British thermal unit, or BTU, content for gas; (3) any bonus paid; (4) oil and gas gathering and transportation costs; and (5) gas processing costs and shrinkage. 49 62 Those adjustments reflect assumptions about the costs to extract, transport and process, if necessary, crude oil, natural gas liquids and natural gas to their point of sale. - Pioneer Parent and Pioneer USA agreed to use a 10.0% discount rate because Pioneer Parent believes that a 10.0% discount rate is necessary based upon the risks involved in the oil and gas industry and Pioneer Parent's requirement to achieve a minimum rate of return on its investment. - Pioneer Parent and Pioneer USA added the present value of the partnership's estimated future net revenues as of March 31, 2001 to the partnership's net working capital as of March 31, 2001 and then reduced that sum by (i) the partnership's pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and (2) the cash distribution mailed on July 13, 2001, by the partnership to its partners. Since the merger value for each partnership includes net working capital, the merger value assigned to the partnership includes the partnership's assets and liabilities other than its oil and gas reserves. Each partnership's other assets and liabilities consist mainly of cash, accounts receivable from the sale of oil and gas production and accounts payable. - The number of shares of Pioneer Parent common stock to be issued to the limited partners of each partnership upon the merger of the partnership will be determined by dividing the merger value assigned to the partnership by the value of one share of Pioneer Parent common stock determined as described below. For purposes of example in this document, a share of Pioneer Parent common stock has been valued at an assumed average closing price of $18.00. However, on the closing date of the merger of each partnership, the value of a share of Pioneer Parent common stock will be recalculated by computing the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date of the special meeting for each partnership. This recalculated value, and not the assumed average closing price of $18.00 per share of Pioneer Parent common stock, used for illustration purposes in this document and on each limited partner's proxy card, will be used to determine the actual number of shares of Pioneer Parent common stock to be issued in the merger of each partnership. The recalculated value may be more or less than the assumed average closing price of $18.00 per share of Pioneer Parent common stock. Pioneer Parent may abandon the proposed merger of any or all of the partnerships at any time prior to the special meeting for any such partnership for any reason including changes in, among other things, the price of Pioneer Parent common stock, the market prices for oil and gas generally or the oil and gas industry generally. Distributions. No cash distributions will be made by any partnership to its partners after the distribution made on July 13, 2001, through the closing date or termination date of the merger of the partnership. The Pioneer Parent common stock to be distributed as payment of the merger value of each participating partnership already reflects the expected amount of those distributions. However, any cash distributions by a nonparticipating partnership which would have been paid during that time period in the ordinary course of that partnership's business will be distributed to its partners at about the same time that the certificates representing Pioneer Parent common stock are mailed to the partners of each participating partnership. Liabilities. Pioneer USA will assume all of the liabilities, including contingent liabilities and obligations, of each participating partnership as of the closing date of the merger of the partnership. As of the date of this document, Pioneer USA is not aware of any material contingent liabilities to which any partnership is subject. Expenses. The expenses and fees to be incurred in connection with the merger of each partnership are expected to be approximately $2.0 million in total. Each participating partnership will pay its pro rata share, based on its reserve value, of those estimated expenses and fees. Pioneer Parent will pay the pro rata share of each nonparticipating partnership's estimated expenses and fees. Pioneer Parent has also agreed to pay any expenses and fees actually incurred in excess of $2.0 million and, if Pioneer Parent terminates or abandons the merger as to any partnership, any expenses or fees allocated to that partnership. Pioneer Parent and Pioneer USA have reduced each partnership's merger value by that partnership's pro rata share of the estimated expenses and fees. ALLOCATION OF MERGER VALUE FOR EACH PARTNERSHIP AMONG PARTNERS OF THE PARTNERSHIP In determining the portion of the merger value attributable to each $1,000 of initial limited partner investment in a partnership, Pioneer Parent determined the amount payable per $1,000 investment as if the assets of the partnership had been sold on March 31, 2001 for cash equal to the merger value of the partnership and the proceeds distributed in accordance with the liquidation provisions of the partnership's partnership agreement. The limited partners of each participating partnership would receive the same amounts if the merger value of the partnership was allocated among the 50 63 partners based on the revenue-sharing provisions of the partnership agreement except for each of the following partnerships which will receive more proceeds under the liquidation provisions of its respective partnership agreement than under its revenue-sharing provisions due to certain prospect-by-prospect payout provisions not being met: Parker & Parsley 81-I, Ltd. Parker & Parsley 81-II, Ltd. Parker & Parsley 82-I, Ltd. Parker & Parsley 82-II, Ltd. Parker & Parsley 82-III, Ltd. OTHER METHODS OF DETERMINING MERGER VALUES Pioneer Parent and Pioneer USA believe that the method used to determine the merger value for each partnership is a fair and reasonable method of valuing the partnership's properties. Pioneer Parent and Pioneer USA considered a number of alternative methods of determining the merger value for each partnership before selecting a method. However, the selected method might not accurately reflect the value of each partnership's assets. See "Risk Factors -- Risk Factors Relating to the Merger of Each Partnership -- The Merger Value for a Partnership Will Not be Adjusted For Changes in Oil and Gas Prices Before the Completion of Its Merger" on page 20. The following alternative methods for determining the merger value for each partnership should be taken into account in assessing the adequacy of the selected method. Book Value of Assets. Pioneer Parent and Pioneer USA did not base the calculation of merger value for each partnership on the net book value of the partnership's assets. The net book value of each partnership's assets is based upon the financial statements reported in accordance with generally accepted accounting principles. The net book value is not adjusted for estimates in changes in the fair market value of the assets. For this reason, Pioneer Parent and Pioneer USA believe that the merger value for each partnership is more indicative of the fair market value of the assets of each partnership than the net book value of the partnership's assets. See the supplemental information table on the second page of the supplement for each partnership for the partnership's merger value and its book value, in each case per $1,000 limited partner investment. In all cases except Parker & Parsley 81-II, Ltd., the merger value is higher than the book value. For Parker & Parsley 81-II, Ltd., the merger value is lower than book value because of the long-lived nature of the oil and gas properties owned by Parker & Parsley 81-II, Ltd. The merger value of Parker & Parsley 81-II, Ltd. takes into account the discounting effect of owning long-lived oil and gas reserves that is not reflected in a book value computation for the partnership. Nonetheless, Pioneer USA has determined that the merger transaction is fair to the limited partners of Parker & Parsley 81-II, Ltd. (1) for the reasons noted above and (2) because Pioneer Parent and Pioneer USA believe that the five-year NYMEX futures prices used in the calculation of the merger value for the partnership (A) provide a reasonable benchmark on the outlook for energy prices, (B) are regularly used by financial markets, industry participants, and lenders in evaluating transactions, and (C) are higher than historic prices. Trading Price of Units. None of the partnership interests are traded on a national stock exchange or in any other significant market. Although some partnership interests are occasionally sold in private or an informal secondary market for limited partner securities, Pioneer Parent and Pioneer USA believe any market for the partnership interests is not reliable as an indicator of value because any such market is highly illiquid and generally reflects an illiquidity discount. As a result, Pioneer Parent and Pioneer USA did not base the calculation of the merger value for any partnership on recent trading prices of partnership interests in the partnership. See Table 15 of Appendix A for historical information about recent trades of partnership interests in each partnership. Repurchase Offers. Pioneer Parent and Pioneer USA did not base the calculation of the merger value for any partnership on the price of recent repurchase offers in the partnership. Most partnerships do not have a repurchase offer obligation, so no repurchase price information was available for those partnerships. Of the partnerships with a repurchase offer obligation, the most recent repurchase offers were based on December 31, 2000 oil and gas prices. The merger value for each partnership with repurchase offer obligations is lower than the 2001 repurchase offer price for the partnership because the repurchase price was based on NYMEX oil and gas prices as of December 31, 2000, which were $26.69 per Bbl of oil and $9.95 per Mcf of gas. Pioneer Parent and Pioneer USA believe that the repurchase obligation is not an indicator of fair value because it is calculated annually on December 31 using oil and gas prices for that specific day. The value determined under the repurchase obligation does not adequately reflect future demand and supply fundamentals which have historically resulted in significant volatility to oil and gas prices. See "Risk Factors -- Risk Factors Relating to the Merger of Each Partnership -- Repurchase Offers in 2001 By Each of the Six Partnerships with a Repurchase Obligation were Higher than the Merger Value for the Partnership" on page 22 of this document and Table 8 of Appendix A to this document for information on each partnership with repurchase offer obligations. 51 64 Timing of Pricing. Oil and gas prices have recovered from NYMEX oil and gas prices of $12.00 per Bbl of oil and $2.00 per Mcf of gas as of December 31, 1998, to the five-year NYMEX futures prices for oil and gas as of March 30, 2001, set forth in the table on page 6 of this document. Pioneer Parent and Pioneer USA used those recovered oil and gas prices to calculate the merger value for each partnership. Future oil and gas prices could be higher or lower than the prices on March 30, 2001 which were used in calculating the merger value for each partnership. Significant increases in future prices would increase cash available for distribution from each partnership and could, in retrospect, suggest that the merger value for such partnership was low by comparison. If those prices were to continue to prevail in the future, the merger value for each partnership would appear low by comparison. In contrast, however, if those prices decline in the future, the merger value for each partnership would appear high by comparison. 52 65 THE MERGER OF EACH PARTNERSHIP GENERAL Immediately before the effective time of the merger of each participating partnership, the partnership agreement for the partnership will be amended by the merger amendment to permit the merger of the partnership with and into us. At the effective time of the merger of each participating partnership, the partnership will be merged with and into us. We will be the surviving entity. In addition, at the effective time of the merger of each participating partnership, each of your partnership interests in the partnership will be converted into the right to receive Pioneer Parent common stock. LEGAL OPINION FOR LIMITED PARTNERS Each of the partnership agreements, except the partnership agreement for Parker & Parsley Producing Properties 88-A, L.P., requires that special legal counsel render an opinion on behalf of the limited partners of each partnership to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. In addition, the partnership agreement for each of the following partnerships requires an opinion that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability: Parker & Parsley 81-I, Ltd. Parker & Parsley 81-II, Ltd. Parker & Parsley 82-I, Ltd. Parker & Parsley 82-II, Ltd. Parker & Parsley 82-III, Ltd. Parker & Parsley 83-A, Ltd. Parker & Parsley 83-B, Ltd. Parker & Parsley 84-A, Ltd. Parker & Parsley 85-A, Ltd. Parker & Parsley 85-B, Ltd. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley Selected 85 Private Investment, Ltd. Parker & Parsley 86-A, Ltd. Parker & Parsley 86-B, Ltd. Parker & Parsley 86-C, Ltd. Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 87-A Conv., Ltd. Parker & Parsley 87-A, Ltd. Parker & Parsley 87-B, Ltd. Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley Producing Properties 87-B, Ltd. For each of the partnerships, other than those listed below, the counsel designated to render the opinion described above must be counsel other than counsel to Pioneer USA or any partnership: Parker & Parsley 88-A Conv., L.P. Parker & Parsley 88-A, L.P. Parker & Parsley 88-B Conv., L.P. Parker & Parsley 88-B, L.P. Parker & Parsley 88-C Conv., L.P. Parker & Parsley 88-C, L.P. Parker & Parsley Private Investment 88, L.P. Parker & Parsley 89-A Conv., L.P. Parker & Parsley 89-A, L.P. Parker & Parsley 89-B Conv., L.P. Parker & Parsley 89-B, L.P. Parker & Parsley Private Investment 89, L.P. Parker & Parsley 90-A Conv., L.P. Parker & Parsley 90-A, L.P. Parker & Parsley 90-B Conv., L.P. Parker & Parsley 90-B, L.P. Parker & Parsley 90-C Conv., L.P. Parker & Parsley 90-C, L.P. Parker & Parsley Private Investment 90, L.P. Parker & Parsley 90 Spraberry Private Dev., L.P. Parker & Parsley 91-A, L.P. Parker & Parsley 91-B, L.P. In all cases, the designated counsel and the legal opinion must be approved by the limited partners of each partnership. Neither Pioneer Parent nor Pioneer USA believe that approval of the legal opinions of the special legal counsel to the limited partners will have any effect on any rights the limited partners may have to bring suit against Pioneer Parent or Pioneer USA (other than any claim of breach of these provisions of the partnership agreements), nor do Pioneer Parent or Pioneer USA expect that approval of the legal opinions would alter any right the limited partners may have to bring suit against the special legal counsel to the limited partners. Pioneer Parent and Pioneer USA believe that these provisions of the partnership agreement were written at a time when the effect of limited partner votes were not well established under tax and limited partnership laws. More recent partnership agreements generally do not have these kinds of requirements because revised uniform limited partnership laws and amendments to tax laws and regulations have eliminated these issues for most typical partnership voting situations. 53 66 In all cases, Pioneer USA has retained Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the limited purpose of rendering the legal opinions described above on behalf of the limited partners of each partnership to Pioneer USA. Neither Stradley Ronon Stevens & Young, LLP nor Arter & Hadden LLP is affiliated with Pioneer Parent, Pioneer USA or any of the partnerships. The merger proposals for each partnership include an approval of those counsel and their opinions. See "The Special Meetings -- Time and Place; Purpose" on page 65 of this document. A copy of the opinions is attached as an exhibit to the merger proposals for each partnership. DISTRIBUTION OF PIONEER PARENT COMMON STOCK Upon completion of the merger of each participating partnership, the partners of the partnership will have no continuing interest in, or rights as partners of, the partnership. The transfer books of each participating partnership will be closed on the closing date of the merger of the partnership. All partnership interests in each participating partnership will cease to be outstanding, will automatically be cancelled and retired, and will cease to exist. The certificates previously representing partnership interests in each participating partnership held by record partners will represent only the right to receive Pioneer Parent common stock. We intend to mail certificates representing Pioneer Parent common stock to the partners of record of each participating partnership promptly following the effectiveness of the merger of the partnership in payment of the merger value for the partnership. Partners of each participating partnership will not be required to surrender partnership interest certificates to receive the Pioneer Parent common stock. FRACTIONAL SHARES Pioneer Parent will not issue fractional shares to any limited partner upon completion of the merger of any partnership. For each fractional share that would otherwise be issued, Pioneer Parent will round any fractional shares of Pioneer Parent common stock up to the nearest whole share. MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES The legal conclusions contained in the following discussion of the material federal income tax consequences of the conversion of partnership interests into Pioneer Parent common stock pursuant to the merger of each participating partnership constitute the opinion of Vinson & Elkins L.L.P., counsel for Pioneer Parent, based upon the facts and assumptions set forth in the registration statement on Form S-4 of which this proxy statement/prospectus is a part and upon current law. Future legislative, judicial or administrative changes or interpretations could alter or modify the following statements and conclusions, and any of these changes or interpretations could be retroactive and could affect the tax consequences to the limited partners of each partnership. Further, any inaccuracy in any of the facts or assumptions set forth in the registration statement could adversely affect or render obsolete the opinion. The opinion does not contain an exhaustive discussion of all possible tax consequences. It does not address any state, local or foreign tax consequences, nor does it discuss all of the aspects of federal income taxation that may be relevant to specific partners in light of their particular circumstances. The opinion describes the material federal income tax consequences applicable to individuals who are citizens or residents of the United States, and therefore has limited application to domestic corporations and persons subject to specialized federal income tax treatment, such as foreign persons, tax-exempt entities, regulated investment companies and insurance companies. The federal tax consequences of each merger will vary for each limited partner because of the different circumstances of each participating partnership and the individual federal income tax position of each limited partner. THE STATEMENTS AND CONCLUSIONS BELOW DO NOT ADDRESS THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY PARTICULAR LIMITED PARTNER. YOU ARE ADVISED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE ALL OF THE RELEVANT FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF EACH MERGER PARTICULAR TO YOU. Tax Consequences of a Conversion of Partnership Interests. - Generally. As more fully described below, if you own partnership interests in a participating partnership, you will generally recognize an aggregate amount of net gain or loss equal to the difference between (1) the fair market value of Pioneer Parent common stock you receive in the merger of that partnership and (2) your adjusted tax basis in your partnership interests exclusive of any basis attributable to liabilities of the partnership immediately prior to the merger. A component of that net gain or loss may be ordinary income or ordinary loss depending upon the extent of any recapture of depletion or intangible drilling and development costs and any appreciation or 54 67 depreciation in the ordinary assets of the partnership. The recognition of ordinary income will decrease the capital gain component or increase the capital loss component of the net gain or loss otherwise recognizable as a consequence of the merger. - Characterization of the Merger of Each Partnership. The merger of a participating partnership into Pioneer USA should be treated for federal income tax purposes as a sale by such partnership of its assets for Pioneer Parent common stock followed by a distribution of the Pioneer Parent common stock received in liquidation of the limited partnership interests. Under Section 613A of the Internal Revenue Code, each of the partners of such partnership must: - maintain the partner's share of the basis in the partnership's oil and gas properties at the partner level; - adjust such basis for depletion deductions; and - use such basis to calculate gain or loss at the partner level on any sale by the partnership of its oil and gas properties. Accordingly, each of the mergers should be generally treated for tax computation purposes as: - a taxable sale by you of your interest in a participating partnership's oil and gas properties for Pioneer Parent common stock and the assumption of liabilities; and - a taxable sale of any remaining partnership assets by the participating partnership for Pioneer Parent common stock followed by a liquidation of the participating partnership. - Gain or Loss on Sale of Partnership Oil and Gas Properties. Upon the deemed sale of a partnership's oil and gas properties in the merger of the partnership, you will recognize gain or loss equal to the difference between: - the portion of the partnership's "amount realized" on the sale of its oil and gas properties allocated to you; and - your adjusted tax basis in the partnership oil and gas properties sold, which must be reduced to reflect depletion claimed during the current year in respect of production prior to the date of the merger. The amount realized will include the fair market value of Pioneer Parent common stock received and the amount of any liability assumed by Pioneer USA in connection with the merger of the partnership which is attributable to the partnership's oil and gas properties. If gain is recognized on such sale, the portion of the gain that is treated as recapture of intangible drilling and development costs or depletion will be treated as ordinary income. See "Recapture of Intangible Drilling and Development Costs" and "Recapture of Depletion" below. The remainder of such gain generally will constitute "Section 1231 gain." If loss is recognized on such sale, such loss generally will constitute "Section 1231 loss." See "Section 1231 Gains and Losses" below. You must take into account your share of the portion of the gain that constitutes recapture income, if any, as ordinary income and must aggregate your share of the Section 1231 gains and losses described above with any Section 1231 gains and losses you realize from other sources. - Other Gain or Loss. You will also recognize your allocable share of the partnership's gain or loss, if any, on the deemed sale of its assets other than oil and gas properties. Such gain or loss will be equal to the difference between the amount realized by the partnership on the sale of such assets and the partnership's adjusted tax basis in such assets. Such gain or loss will be capital or ordinary depending on the nature of the assets sold. Finally, in the event that the fair market value of Pioneer Parent common stock you receive in the merger of the partnership is more or less than the adjusted tax basis in your partnership interests, as adjusted to reflect gains and losses described in the two preceding paragraphs as well as the effects of the partnership's current year activities, then upon the deemed liquidation of a partnership, you will recognize capital gain or loss equal to the difference between such amounts. See "Tax Consequences of Partnership Operations" below. Pioneer USA will provide you with information necessary to make the calculations under Section 613A of the Internal Revenue Code described above for purposes of filing your own federal income tax return. In order to simplify your federal income tax reporting, this information will include a calculation of the amount and character of your gain on the deemed sale of the partnership's oil and gas properties based upon our estimates. You should verify the accuracy of these calculations based upon your own records. - Section 1231 Gains and Losses. Generally, if the total amount of the Section 1231 gains exceeds the total amount of Section 1231 losses, all such gains and losses will be treated as capital gains and losses, and if the total amount of the Section 1231 losses exceeds the total amount of the gains, all such gains and losses will be treated as ordinary income and losses. However, your net Section 1231 gains will be treated as ordinary income to the extent 55 68 of your net Section 1231 losses during the immediately preceding five years, reduced by any amount of net Section 1231 losses that have been previously "recaptured" by you pursuant to this rule. - Recapture of Intangible Drilling and Development Costs. Generally, all or a portion of the amounts previously deducted for intangible drilling and development costs for a property must be recaptured upon the disposition of such property by treating the gain, if any, realized on such disposition as ordinary income to the extent of such amounts. For a property placed in service prior to 1987, the potential recapture amount is equal to the excess of the aggregate amounts previously deducted for intangible drilling and development costs for such property over the amount by which the deduction for depletion for such property would have been increased had the intangible drilling and development costs been capitalized and recovered through depletion rather than deducted in the year incurred. It should be noted that, if percentage depletion, rather than cost depletion, has been claimed for such property, the hypothetical capitalization of intangible drilling and development costs may result in little or no increase in depletion deductions and, as a consequence, most or all of the intangible drilling and development costs for such property may be subject to recapture. For property placed in service during 1987 or thereafter, the full amount of intangible drilling and development costs previously deducted, unreduced by depletion, is subject to recapture to the extent of any gain. - Recapture of Depletion. Upon the disposition of a property that was placed in service during 1987 or thereafter, all amounts previously deducted for depletion, whether cost depletion or percentage depletion, to the extent such amounts reduced the basis in the property, must be recaptured by treating the gain, if any, recognized on such disposition as ordinary income to the extent of such amounts. No such recapture rule is applicable to a property placed in service before 1987. - Tax Rates. The capital gains rate for individuals and other non-corporate taxpayers is 20% if the capital asset has been held for more than one year at the time of consummation of the merger of each partnership. Corporate taxpayers are taxed at a maximum marginal rate of 35% for both capital gains and ordinary income. The maximum marginal federal income tax rate for ordinary income of individuals and other non-corporate taxpayers is 39.1% for the 2001 calendar year under recent legislation. Capital losses are deductible only to the extent of capital gains, except that, subject to the passive activity loss limitation discussed below, non-corporate taxpayers may deduct up to $3,000 of capital losses in excess of the amount of their capital gains against ordinary income. Excess capital losses generally can be carried forward to succeeding years. A corporation is permitted to carry back excess capital losses to the three preceding years, provided the carryback does not increase or produce a net operating loss for any of those years. A corporation's carryforward period is five years and a non-corporate taxpayer can carry such losses forward indefinitely. - Passive Activity Loss Limitation. Under Section 469 of the Internal Revenue Code, any losses from any participating partnership that have been suspended under the passive loss rules will become fully deductible as a result of the merger of any such partnership. FIRPTA Withholding. Gain recognized by a foreign limited partner on the sale by a participating partnership of its assets pursuant to the merger of the partnership will be subject to federal income tax if such gain is effectively connected with the conduct of a U.S. trade or business by the partnership or the foreign limited partner. Gain recognized on the sale of U.S. real property, including a participating partnership's oil and gas properties, is treated as effectively connected with the conduct of a U.S. trade or business for this purpose. Under Internal Revenue Code Section 1446, a participating partnership in which an interest is held by a foreign person generally is required to deduct and withhold a tax equal to the highest marginal federal income tax rate applicable to the partner multiplied by such partner's allocable share of effectively connected income. In order to comply with this requirement, each participating partnership will withhold the prescribed percentage of the effectively connected income allocated to you unless you properly complete and sign a certification of non-foreign status certifying your taxpayer identification number and address, and that you are not a foreign person. Amounts withheld will be creditable against a limited partner's federal income tax liability and, if in excess thereof, a refund may be obtained from the Internal Revenue Service by filing a U.S. income tax return. Tax Consequences of Partnership Operations. The federal income tax consequences of the merger of each partnership, described above, are in addition to the tax consequences of a participating partnership for the taxable year ending on the closing date of the merger of the partnership. You must include your allocable share of a participating partnership's items of income, gain, loss, deduction and credit for that taxable year, including your allocable share through the closing date of the merger of the partnership, on your federal income tax return for that taxable year. That information will be provided to you by or on behalf of the partnership on a Schedule K-1 as required by tax law. The 56 69 results of partnership operations for such period will impact your tax basis in your interest in a participating partnership, and your computation of gain or loss resulting from the merger of the partnership. ACCOUNTING TREATMENT The merger of each participating partnership will be accounted for as a purchase under generally accepted accounting principles. Under those rules, Pioneer USA will record the assets and liabilities of each participating partnership on its books at its estimated fair market value. EFFECT OF DEBT OWED BY A LIMITED PARTNER TO PIONEER USA ON AMOUNT OF PIONEER PARENT COMMON STOCK TO BE RECEIVED BY THE LIMITED PARTNER If a limited partner is indebted to Pioneer USA for any portion of the limited partner's original investment in the partnership, Pioneer USA plans to apply the Pioneer Parent common stock that would otherwise be distributed to the limited partner upon completion of the merger of the partnership against that limited partner's indebtedness. If a limited partner's indebtedness to Pioneer USA is less than the merger value allocated to limited partnership interests held by the limited partner, the limited partner will receive Pioneer Parent common stock equal to the amount by which such merger value exceeds such indebtedness. If a limited partner's indebtedness to Pioneer USA is greater than the merger value allocated to the limited partnership interests held by the limited partner, Pioneer USA may collect the deficiency from the limited partner. EFFECT OF MERGER OF EACH PARTNERSHIP ON LIMITED PARTNERS WHO DO NOT VOTE IN FAVOR OF THE MERGER; NO APPRAISAL OR DISSENTERS' RIGHTS You will be bound by the merger of each partnership in which you own an interest if the limited partners in the partnership vote a majority, or 66 2/3% for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., of their partnership interests in favor of the merger, even if you vote against the merger or do not vote. If the merger of the partnership occurs, you will be entitled to receive only Pioneer Parent common stock based on the merger value of your partnership interests in the partnership. Under the laws of the State of Delaware and the State of Texas, which are the states of formation of the partnerships, you are not entitled to appraisal or dissenters' rights with respect to the merger of any partnership. FUTURE OF NONPARTICIPATING PARTNERSHIPS If the limited partners of a partnership do not approve the merger of that partnership, the partnership will remain in existence. Each nonparticipating partnership will continue to operate as a separate legal entity with its own assets and liabilities. There will be no immediate change in its business objectives, and Pioneer USA plans to continue to manage and operate each nonparticipating partnership in accordance with the terms of its current partnership agreement. A limited partner in a nonparticipating partnership will retain the rights, privileges and obligations that the limited partner currently has pursuant to the partnership agreement of the nonparticipating partnership. At about the same time that Pioneer USA mails certificates for Pioneer Parent common stock to the partners of each participating partnership in payment of the merger value for the partnership, Pioneer USA will mail any cash distributions that were delayed for administrative purposes prior to the completion of the merger of each participating partnership to the partners of each nonparticipating partnership. Pioneer USA's board of directors will determine each nonparticipating partnership's business plan. In addition, the board of directors of each of Pioneer Parent and Pioneer USA will decide what, if any, actions they will take with respect to each nonparticipating partnership. Potential activities may include a tender offer for partnership interests of limited partners or a proposal to acquire the assets of, or merge with, one or more of the nonparticipating partnerships. Such proposals may be on terms similar to or different from those of the merger of each partnership described in this document. Pioneer USA plans to continue to manage each nonparticipating partnership until such partnership is dissolved or Pioneer USA is replaced as the general partner of such partnership. The replacement of Pioneer USA as general partner would require compliance with the partnership agreement of such nonparticipating partnership, including the requisite vote of the limited partners thereof. A nonparticipating partnership may be dissolved in the future in accordance with its partnership agreement if Pioneer USA or any substituted general partner withdraws from the nonparticipating partnership, or in some cases, otherwise elects to dissolve that partnership. Pioneer USA might withdraw from, or otherwise elect to dissolve, a nonparticipating partnership if Pioneer USA determines that the nonparticipating partnership's continued 57 70 operation is uneconomical or its dissolution and liquidation are in the best interests of the partners of that partnership. Upon dissolution, the nonparticipating partnership's assets may be sold for cash or securities, which may be more or less than the merger value assigned to that partnership, or distributed in kind to the partners of the nonparticipating partnership. Any such sale may be to Pioneer Parent or an affiliate of Pioneer Parent and may involve cash or securities of Pioneer Parent. NONMANAGING GENERAL PARTNERS OF SOME PARTNERSHIPS Eight of the partnerships described in this document have two general partners. In those eight partnerships, Pioneer USA is the managing general partner. The second general partner in those partnerships is a partnership whose limited partners are former affiliates of Pioneer Parent's predecessors. The names of the eight partnerships and the names of the nonmanaging general partner in each of those partnerships are:
PARTNERSHIP NONMANAGING GENERAL PARTNER ----------- --------------------------- Parker & Parsley 81-I, Ltd.................................. P&P Employees 81-I, Ltd. Parker & Parsley 81-II, Ltd................................. P&P Employees 81-II, Ltd. Parker & Parsley 82-I, Ltd.................................. P&P Employees 82-I, Ltd. Parker & Parsley 82-II, Ltd................................. P&P Employees 82-II, Ltd. Parker & Parsley 82-III, Ltd................................ P&P Employees 82-III, Ltd. Parker & Parsley 83-A, Ltd.................................. P&P Employees 83-A, Ltd. Parker & Parsley 83-B, Ltd.................................. P&P Employees 83-B, Ltd. Parker & Parsley 84-A, Ltd.................................. P&P Employees 84-A, Ltd.
Pioneer USA is the sole general partner of each of the nonmanaging general partners. In that capacity, Pioneer USA has authority: - to cause the nonmanaging general partner to perform its obligations relating to the partnership described above; and - to exercise on behalf of the nonmanaging general partner all of the rights and elections granted to the nonmanaging general partner by the partnership described above. None of the nonmanaging general partners has the right to vote on the merger of any partnership. However, Pioneer USA, as the general partner of each nonmanaging general partner, has approved the merger of each partnership and the distribution of this document to the limited partners of each partnership and to the unaffiliated limited partners of each nonmanaging general partner, if any, of each partnership. The merger value attributable to the unaffiliated limited partners of the nonmanaging general partners is $203,347, consisting of approximately 11,298 shares of Pioneer Parent common stock in the aggregate assuming an average closing price of $18.00 per share of Pioneer Parent common stock. Pioneer USA will not receive any Pioneer Parent common stock in any merger for its partnership interests in any nonmanaging general partner. THIRD PARTY OFFERS Pioneer USA will consider offers from third parties to purchase any partnership or its assets. Those who wish to make an offer for any partnership or its assets must demonstrate to Pioneer USA's reasonable satisfaction their financial ability and willingness to complete such a transaction. Before reviewing non-public information about a partnership, a third party will need to enter into a customary confidentiality agreement. Offers should be at prices and on terms that are fair to the partners of the partnership for which the offer is being made and more favorable to the unaffiliated limited partners than the prices and terms proposed for the merger of that partnership in this document. Pioneer Parent reserves the right to match or top any such offer. In addition, any such offer would be subject to Pioneer USA's right to continue operation of the properties. Since first announcing our willingness to consider third party offers in September 1999, Pioneer USA has not received any third party offer for any partnership or its assets. Other than announcing that we will consider third party offers for any partnership or its assets we have not actively solicited bids from third parties. Persons desiring to make an offer for any partnership should contact Timothy L. Dove or Mark L. Withrow, Board of Directors, Pioneer Natural Resources USA, Inc., 5205 North O'Connor Boulevard, Suite 1400, Irving, Texas 75039. 58 71 MERGER AMENDMENT In order to complete the merger of each partnership, the partnership agreement for the partnership requires an amendment to add a provision permitting the merger of the partnership with and into Pioneer USA. See the merger proposals, which include the merger amendment, set forth in Appendix E to this document. At the special meeting for each partnership, the limited partners of the partnership will vote upon the merger amendment, which, if approved, will be effective immediately prior to the effectiveness of the merger of the partnership. TERMINATION OF REGISTRATION AND REPORTING REQUIREMENTS As a result of the merger of each participating partnership, the partnership interests in the partnership, as well as the partnership itself, will cease to exist. Twenty-five of the partnerships described in this document have registered their partnership interests under, or are otherwise subject to the informational requirements of, the Securities Exchange Act of 1934. See "Where You Can Find More Information" for a list of those partnerships. Upon the completion of the merger of each reporting partnership, Pioneer USA intends to terminate: - registration of the partnership interests of the partnership under the Securities Exchange Act of 1934; and - the partnership's obligations to file reports and other information under the Securities Exchange Act of 1934. Pioneer USA plans to cause each nonparticipating partnership that is also a reporting partnership to continue to file reports and other information under the Securities Exchange Act of 1934. However, Pioneer USA's board of directors could determine in the future to cause each such partnership to terminate its reporting obligations as permitted by federal securities laws. The advantages of remaining registered, or remaining obligated to file reports, under the Securities Exchange Act of 1934 include the informational and reporting requirements under that act, including requirements related to tender offers, proxy solicitation and consents and insiders' transactions in partnership interests. Those reporting requirements may provide limited partners with more detailed information on a more frequent basis than might otherwise be required under the partnership agreement for the partnership. In addition, a partnership's filings under the Securities Exchange Act of 1934 are available to the public over the Internet at the SEC's web site at www.sec.gov and are also available at the SEC's public reference rooms in Washington, D.C., and Chicago, Illinois. The disadvantages of remaining registered, or remaining obligated to file reports, include the partnership's cost to prepare and distribute the various reports and other information required under the Securities Exchange Act of 1934. Deregistering the partnership interests of a nonparticipating partnership or otherwise terminating its filing and reporting obligations could reduce that partnership's general and administrative expenses because the reporting obligations of the partnership under its partnership agreement require annual and semi-annual reports, but not quarterly reports. ELIMINATION OF A FAIRNESS OPINION REQUIREMENT THAT WOULD OTHERWISE BENEFIT PIONEER USA Pioneer USA, as the sole general partner of each of Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., is entitled to receive an opinion as to the fairness of the proposed merger transaction to Pioneer USA in its capacity as sole general partner of each of those partnerships. However, since Pioneer Parent and Pioneer USA are the parties making the offer for the proposed merger transaction, Pioneer USA will not seek such a fairness opinion. In addition, Pioneer USA, as the sole general partner of each of those two partnerships, is entitled to amend, and Pioneer USA will amend, the partnership agreement for the partnership to eliminate the requirement for such fairness opinion for Pioneer USA in connection with the proposed merger of the partnership. 59 72 PAYMENT OF EXPENSES AND FEES Pioneer Parent and Pioneer USA estimate that the aggregate expenses and fees of the mergers of all of the partnerships will be as follows: Filing fee with SEC......................................... $ 20,500 Legal fees.................................................. 350,000 Accounting fees............................................. 100,000 Financial advisor fees...................................... 365,000 Independent petroleum consultant fees....................... 50,000 Printing and mailing fees................................... 850,000 Information agent fees and solicitation and tabulation expenses.................................................. 225,000 Miscellaneous............................................... 39,500 ---------- Total expenses.................................... $2,000,000 ==========
Each participating partnership will pay its pro rata share, based on its reserve value, of the aggregate estimated expenses and fees of the mergers of all of the partnerships. Pioneer Parent will pay the pro rata share of each nonparticipating partnership's estimated expenses and fees. Pioneer Parent has also agreed to pay any expenses and fees actually incurred in excess of $2.0 million and if Pioneer Parent terminates or abandons the merger as to any partnership, any expenses or fees allocated to that partnership. Pioneer Parent and Pioneer USA have reduced the net working capital component of each partnership's merger value by that partnership's pro rata share of the estimated expenses and fees. 60 73 THE MERGER AGREEMENT The following describes the material terms of the merger agreement that Pioneer Parent, Pioneer USA, and the partnerships signed on September 20, 2001. The full text of the merger agreement is attached as Appendix F to this document and is incorporated by reference in this document. We encourage you to read the entire merger agreement. STRUCTURE; EFFECTIVE TIME The merger agreement provides for the merger of each participating partnership with and into Pioneer USA, with Pioneer USA surviving each merger. Each merger will become effective at the time of the filing of the certificate of merger for each participating partnership with the Secretary of State of the State of Delaware and, for each participating partnership formed in Texas, with the Secretary of State of the State of Texas. Each certificate of merger is expected to be filed as soon as practicable after the last condition precedent to the related merger set forth in the merger agreement has been satisfied or waived. We estimate that the closing of the merger of each partnership will be in the fourth quarter of 2001. EFFECT OF THE MERGER OF EACH PARTNERSHIP As a result of the merger of each participating partnership, the partners in the partnership will have no continuing interest in that partnership. Following the merger of each participating partnership, there will be no trading market for the partnership interests in, and no further distributions paid to the former partners of, the partnership. In addition, following the consummation of the merger of each participating partnership that is also a reporting partnership, the registration of any partnership interests in the partnership under the Securities Exchange Act of 1934 will be terminated. CONDUCT OF BUSINESS PRIOR TO THE MERGER OF EACH PARTNERSHIP From the date of the merger agreement until the effective time of the merger of each partnership, each partnership is required: - to conduct its business only in the ordinary course consistent with past practice; and - to use its reasonable best efforts: - to preserve intact its business organization; - to keep available the services of its officers, employees and consultants; and - to preserve its relationships with customers, suppliers and other persons with which it has significant business dealings. Pioneer USA has suspended cash distributions to the partners of each partnership until after the effective time of the merger of the partnership. Partners of each nonparticipating partnership will receive cash distributions that are delayed for administrative purposes at about the same time Pioneer USA mails certificates for Pioneer Parent common stock to the partners of each participating partnership in payment of merger value for each partnership. OTHER AGREEMENTS Special Meetings; Proxies. Pioneer USA has agreed to cause the special meeting of the limited partners of each partnership to be duly called and held as soon as reasonably practicable for the purpose of voting on the approval and adoption of the merger proposals for the partnership. Pioneer USA has also agreed to use its reasonable best efforts to solicit from the limited partners of each partnership proxies in favor of the merger proposals and to take all other action necessary or advisable to secure any vote or consent of the limited partners of the partnership required by the partnership agreement of the partnership or the merger agreement or by law in connection with the merger of the partnership. Reasonable Commercial Efforts. Each party has agreed to use all reasonable commercial efforts: - to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings; and - to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate as promptly as practicable the transactions contemplated by the merger agreement. 61 74 REPRESENTATIONS AND WARRANTIES OF PIONEER PARENT, PIONEER USA AND EACH PARTNERSHIP The merger agreement contains substantially reciprocal representations and warranties of Pioneer Parent, Pioneer USA and each of the partnerships, including the following matters: - due organization or formation, standing, corporate or partnership power and qualification; - absence of any conflict, breach, notice requirement or default under organizational documents and material agreements as a result of each contemplated merger; - authority to enter into and the validity and enforceability of the merger agreement; - absence of any material adverse change since June 30, 2001; and - accuracy of information. In addition, the merger agreement contains representations and warranties by: - each of the partnerships as to capitalization; - each of Pioneer Parent and each reporting partnership, as to the absence in its reports filed with the SEC of any untrue statement of a material fact or any omission to state a material fact necessary to make the statements in such reports not misleading; - each of Pioneer Parent and each partnership, that its financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis and fairly present its financial condition and results of operations; and - Pioneer USA as to its capacity as the managing or sole general partner of each partnership and as the sole general partner of each nonmanaging general partner. CONDITIONS TO THE MERGER OF EACH PARTNERSHIP Conditions to the Obligations of Each Party. The obligations of Pioneer Parent, Pioneer USA and each partnership to complete the merger of the partnership are dependent on the satisfaction of the following conditions: - the merger agreement shall have been approved by the requisite vote of the limited partners of the partnership entitled to vote at the partnership's special meeting; - Pioneer USA shall have received the fairness opinion from Stanger that, as of the date of that opinion, that the merger value for each partnership and the allocation of the merger value of the partnership (1) to the limited partners of the partnership as a group, (2) to the general partners of the partnership as a group, (3) to Pioneer USA as the managing or sole general partner of the partnership, (4) to the unaffiliated limited partners of the partnership as a group and (5) to the unaffiliated limited partners of the nonmanaging general partner, if any, of the partnership as a group, is fair to the unaffiliated limited partners of the partnership and the unaffiliated limited partners of the nonmanaging general partner, if any, of the partnership, from a financial point of view, and such opinion shall not have been withdrawn; - Pioneer USA shall have received the opinion of counsel to the limited partners of each partnership that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability; - the absence of any law, regulation, judgment, injunction, order or decree that would prohibit the consummation of any merger; - the absence of any pending suit, action or proceeding challenging the legality or any aspect of the merger of any partnership or the transactions related to the merger; - the authorization for listing on the New York Stock Exchange and the Toronto Stock Exchange upon official issuance of notice shall have been received for the shares of Pioneer Parent common stock to be issued upon the merger of each partnership; 62 75 - all material filings and registrations with, and notifications to, third parties shall have been made and all material approvals and consents of third parties shall have been received; and - the absence of any opinion of counsel that the exercise by the limited partners of each partnership of the right to approve the merger of the partnership is not permitted by state law. Conditions to the Obligations of Pioneer Parent. The obligations of Pioneer Parent to complete the merger of each partnership are further subject to the satisfaction of the following conditions: - each of Pioneer USA and each partnership having performed in all material respects its agreements contained in the merger agreement; and - the representations and warranties of Pioneer USA and each partnership being true and correct in all material respects at the closing date of the merger of the partnership as if made at that time unless they relate to another specified time. Conditions to the Obligations of Pioneer USA and Each Partnership. The obligations of Pioneer USA and each partnership to complete the merger of the partnership are further subject to the satisfaction of the following conditions: - Pioneer Parent having performed in all material respects its agreements contained in the merger agreement; and - the representations and warranties of Pioneer Parent being true and correct in all material respects at the closing date of the merger of the partnership as if made at that time unless they relate to another specified time. If we choose to waive a material condition to a merger, we will disclose that waiver to the limited partners of the affected partnerships and resolicit proxies for that merger. TERMINATION OF THE MERGER AGREEMENT AND THE MERGER OF ANY PARTNERSHIP The merger agreement may be terminated and the merger of any partnership abandoned at any time prior to the effective time, whether before or after approval by the limited partners: - by the mutual written consent of the parties; - by any party, if: - any applicable law, rule or regulation makes consummation of any merger illegal or otherwise prohibited or any final and non-appealable judgment, injunction, order or decree enjoining any party from consummating any merger is entered; - the requisite limited partner approval for a partnership is not obtained by a vote at the special meeting for the partnership or at any adjournment or postponement of the special meeting; or - any suit, action or proceeding is filed against Pioneer Parent, Pioneer USA, any partnership or any officer, director or affiliate of Pioneer Parent or Pioneer USA challenging the legality or any aspect of the merger of any partnership or the transactions related to the merger; - by Pioneer Parent, if Pioneer USA or any partnership is in material breach of the merger agreement; - by Pioneer USA or any partnership as to that partnership's merger, if Pioneer Parent is in material breach of the merger agreement; - by Pioneer USA, if Pioneer USA's board of directors determines that termination of the merger agreement is required in order for the board to comply with its fiduciary duties; or - by Pioneer Parent, if there shall have occurred any event, circumstance, condition, development or occurrence causing, resulting in or having, or reasonably expected to cause, result in or have, a material adverse effect (1) on any partnership's business, operations, properties, taken as a whole, condition, financial or otherwise, results of operations, assets, taken as a whole, liabilities, cash flows or prospects, (2) on market prices for oil and gas prevailing generally in the oil and gas industry since the date of determination of the oil and gas commodity prices used in the determination of the merger value for each partnership, (3) on the price of Pioneer Parent common stock or (4) on the oil and gas industry generally. 63 76 If the merger agreement is validly terminated or the merger of any partnership is abandoned, none of Pioneer Parent, Pioneer USA nor any such partnership shall have any liabilities or obligations to the other parties based on the merger agreement or such merger except: - Pioneer Parent will pay all expenses and fees of each partnership in connection with the merger of that partnership incurred before the termination of the merger agreement or abandonment of the merger of the partnership; and - a party will be liable if that party is in breach of the merger agreement. AMENDMENTS; WAIVERS Any provision of the merger agreement may be amended prior to the effective time if the amendment is in writing and signed by Pioneer Parent and Pioneer USA; provided, that after the approval of the merger proposals by the limited partners of each partnership, no amendment shall, without the further approval of the limited partners of each partnership: - adversely change the type or amount of, or the method of determining, the consideration to be received in exchange for any partnership interests in the partnership; or - materially and adversely affect the rights of the limited partners of the partnership, other than a termination of the merger agreement or abandonment of the merger of the partnership. Prior to the effective time, the parties may: - extend the time for the performance of any of the obligations of the parties; - waive any inaccuracies in the representations and warranties in the merger agreement or in a document delivered pursuant to the merger agreement; and - waive compliance with any agreement or condition in the merger agreement. Any such extension or waiver will be valid only if it is in writing and signed by the party against whom the extension or waiver is to be effective. 64 77 THE SPECIAL MEETINGS TIME AND PLACE; PURPOSE The special meeting of the limited partners of each partnership will be held on , 2001, at 10:00 a.m., at the Dallas Marriott Las Colinas Hotel, Irving, Texas 75039. The purpose of each special meeting, and any adjournment or postponement of the special meeting for each partnership, is for the limited partners of each partnership to consider and vote on the following matters: - A proposal to approve an Agreement and Plan of Merger dated as of September 20, 2001, among Pioneer Parent, Pioneer USA and each of the partnerships. Each participating partnership will merge with and into Pioneer USA, with Pioneer USA surviving the merger. Each partnership interest of a participating partnership will be converted into Pioneer Parent common stock. The number of shares of common stock Pioneer Parent will offer for all partnership interests of a participating partnership will be based on (1) the participating partnership's merger value and (2) the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date scheduled for the special meeting for the partnership. The merger value for a participating partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution mailed on July 13, 2001, by the partnership to its partners. For purposes of illustration in this document, we have calculated the number of shares to be issued based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. Prior to the date of the special meeting for each partnership, we will update the number of shares to be issued using the actual average closing price of Pioneer Parent common stock for the ten trading days ending three business days before the initial date of the special meeting. The Pioneer Parent common stock will be allocated among the partners based on the liquidation provisions of each partnership agreement. Pioneer Parent will not issue fractional shares to any limited partner upon completion of the merger of any partnership. Instead, Pioneer Parent will round any fractional shares of Pioneer Parent common stock up to the nearest whole share. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in the participating partnerships. - A proposal to amend the partnership agreement of each partnership to permit the partnership's merger with Pioneer USA. If the amendment is not approved, that partnership cannot merge into Pioneer USA even if the partners of that partnership approve the merger agreement. - A proposal (A) to approve the opinion issued to Pioneer USA by Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, relying as to matters of Texas law on the opinion of Arter & Hadden LLP of Dallas, Texas, on behalf of the limited partners of each partnership that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners (1) will result in the loss of any limited partner's limited liability or (2) will adversely affect the federal income tax classification of the partnership or any of its limited partners and (B) to approve the selection of Stradley Ronon Stevens & Young, LLP and (as to Texas law matters) Arter & Hadden LLP as special legal counsel for the limited partners of each partnership for the limited purpose of rendering the legal opinion. Pioneer USA is also soliciting authorization to use its discretionary voting authority to vote proxies in favor of any adjournment or postponement of the special meeting in order to solicit additional proxies. The Delaware Revised Uniform Limited Partnership Act and the Texas Revised Limited Partnership Act require limited partner approval and adoption of the merger agreement and the merger amendment. Generally, the partnership agreement of each partnership requires that special legal counsel for the limited partners render its legal opinion related to the limited partners' approval of the merger of that partnership. See "The Merger of Each Partnership -- Legal Opinion for Limited Partners" on page 53 of this document. PIONEER USA'S BOARD OF DIRECTORS UNANIMOUSLY DETERMINED THAT THE MERGER OF EACH PARTNERSHIP IS ADVISABLE, FAIR TO THE UNAFFILIATED LIMITED PARTNERS OF THE PARTNERSHIP, AND IN THEIR BEST INTERESTS. THE BOARD RECOMMENDS THAT THE UNAFFILIATED LIMITED PARTNERS VOTE FOR THE MERGER PROPOSALS FOR EACH PARTNERSHIP IN WHICH THEY OWN AN INTEREST. ALTHOUGH PIONEER USA'S BOARD OF DIRECTORS HAS ATTEMPTED TO FULFILL ITS FIDUCIARY DUTIES TO THE LIMITED PARTNERS OF EACH PARTNERSHIP, PIONEER USA'S BOARD OF DIRECTORS HAD CONFLICTING INTERESTS IN EVALUATING EACH MERGER BECAUSE EACH MEMBER OF ITS BOARD OF DIRECTORS IS ALSO AN OFFICER OF PIONEER PARENT. 65 78 RECORD DATE; VOTING RIGHTS AND PROXIES Only limited partners of record of each partnership at the close of business on September 21, 2001 are entitled to notice of and to vote at the special meeting for the partnership in which they own partnership interests, or any adjournments or postponements of such special meeting. Pioneer USA is entitled to vote partnership interests it holds as a limited partner in all of the partnerships except: Parker & Parsley 85-A, Ltd. Parker & Parsley 85-B, Ltd. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley Selected 85 Private Investment, Ltd. Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 91-A, L.P. Parker & Parsley 91-B, L.P. Pioneer USA's affiliates are also entitled to vote partnership interests they hold as limited partners in all but the seven partnerships listed above. However, no affiliates of Pioneer USA own such interests. See "Ownership of Partnership Interests" on page 71 of this document. Limited partners of record of each partnership are entitled to vote at the partnership's special meeting based on the limited partners' respective percentage of partnership interests in the partnership. Each limited partner will receive a proxy card for all partnerships in which that limited partner holds partnership interests. The proxy card will indicate the amount of Pioneer Parent common stock offered with respect to such partnership interests in each partnership. Although the number of shares of Pioneer Parent common stock offered as shown on the proxy card may change, the value of Pioneer Parent common stock offered as shown on the proxy card will not be adjusted. The percentage of partnership interests that a limited partner holds in a partnership is determined by comparing the amount of the limited partner's initial investment, including any additional assessments, in the partnership to the total investment of all partners, including any additional assessments, in the partnership. The aggregate initial investment, including any additional assessments, in each of the partnerships by the limited partners is set forth in Table 1 of Appendix A. A limited partner of record may grant a proxy to vote for or against, or may abstain from voting on, the merger proposals applicable to each of the partnerships in which the limited partner holds partnership interests. To be effective for purposes of granting a proxy to vote on the merger proposals applicable to each partnership, a proxy card must be properly completed, executed and delivered to Pioneer USA's information agent, in person or by mail, telegraph, telex or facsimile before the special meeting for the partnership. All partnership interests represented by properly executed proxies will, unless these proxies have been previously revoked, be voted in accordance with the instructions indicated in these proxies. If no instructions are indicated, the partnership interests will be voted for approval and adoption of the merger proposals. A properly executed proxy card for a partnership marked abstain is counted as present for purposes of determining the presence or absence of a quorum at the special meeting for the partnership, but will not be voted. Accordingly, abstentions will have the same effect as a vote against the merger proposals. Unrevoked proxies granted in the proxy cards for a partnership will be voted at the special meeting for that partnership or at any adjournment or postponement of the special meeting, if received by Pioneer USA's information agent before the special meeting for the partnership. Proxies granted in the proxy cards for a partnership will remain valid until the completion of the special meeting for the partnership. Each partnership agreement requires that a meeting be held within 60 days of the date of mailing of the notice of meeting. None of the partnership agreements specifically addresses, and Pioneer USA has not sought any opinions of counsel as to, whether proxies may be voted at a meeting originally scheduled to be held within 60 days of the sending of the notice and adjourned or postponed to a date more than 60 days after the date of notice. Pioneer USA will not accept a vote of the limited partners of any partnership in such circumstances unless it receives an opinion of counsel that such a vote would be valid. The inspector of election appointed for the special meeting for each partnership will tabulate the votes cast by proxy or in person at the special meeting. 66 79 REVOCATION OF PROXIES You may revoke a proxy you have given at any time before that proxy is voted at the special meeting for each partnership in which you own an interest by: - giving written notice of revocation to Pioneer USA; - signing and returning a later dated proxy; or - voting in person at the special meeting. Your notice of revocation will not be effective until Pioneer USA receives it at or before the special meeting for each partnership in which you own an interest. Your presence at any such special meeting will not automatically revoke your proxy in a proxy card. Revocation during any such special meeting will not affect votes previously taken. You may deliver your written notice of revocation in person or by mail, telegraph, telex, or facsimile. Any written notice of revocation must specify your name and limited partner number as shown on your proxy card and the name of the partnership to which your revocation relates. SOLICITATION OF PROXIES We are soliciting your proxy pursuant to this document. The aggregate estimated expenses and fees of the merger of each partnership that have been allocated to each partnership include those incurred in connection with solicitation of the enclosed proxy as described below. Pioneer USA has retained D.F. King & Co., Inc. to assist in the solicitation of proxies from the limited partners of each partnership. The total fees and expenses of D.F. King & Co., Inc. are estimated to aggregate $225,000 and have been allocated among the partnerships, on a pro rata basis, based on each partnership's reserve value. In addition to solicitation by use of the mail, proxies may be solicited by D.F. King & Co., Inc. and by directors, officers and employees of Pioneer Parent and Pioneer USA in person or by telephone, telegram, facsimile or e-mail. The directors, officers and employees will not be additionally compensated, but may be reimbursed for out-of-pocket expenses incurred in connection with the solicitation. Arrangements may also be made with other brokerage firms, banks, custodians, nominees and fiduciaries for the forwarding of proxy solicitation materials to owners of limited partnership interests held of record by those persons. Each partnership will pay its pro rata share, based on its reserve value, of those persons' reasonable expenses incurred in forwarding those materials. Pioneer USA has also retained D.F. King & Co., Inc. to act as information agent to perform consulting, administration and clerical work with respect to the merger of each partnership. Pioneer USA has agreed to indemnify D.F. King & Co., Inc. against certain liabilities, including liabilities under the federal securities laws. D.F. King & Co., Inc. will also be responsible for the receipt and tabulation of the proxy cards. The fees and expenses of D.F. King & Co., Inc. for its services as information agent and tabulator are included in the aggregate amount set forth above. We intend to mail certificates representing shares of Pioneer Parent common stock to the partners of record of each participating partnership promptly after completing the merger of that partnership. Certificates representing partnership interests will be automatically canceled, and you will not have to surrender your certificates to receive the Pioneer Parent common stock. QUORUM The presence in person or by properly executed proxy of a majority of limited partnership interests entitled to vote in each partnership is necessary to constitute a quorum at that partnership's special meeting. If a quorum is not present at any special meeting, the limited partners entitled to vote who are present or represented by proxy at that special meeting may adjourn or postpone that special meeting without notice until a quorum is present. If a quorum is present at the adjourned or postponed meeting, any business may be transacted that may have been transacted at the special meeting had a quorum originally been present. If the adjournment or postponement is for more than 30 days or if after the adjournment or postponement a new record date is fixed for the adjourned or postponed meeting, a notice of the adjourned or postponed meeting shall be given to each limited partner of record entitled to vote at the adjourned or postponed meeting. We are soliciting your proxy to vote in favor of any motion to adjourn or postpone the special meeting of any partnership if, prior to the special meeting, we have not received sufficient proxies to approve 67 80 the merger of the partnership as described in this document. If we receive sufficient proxies to vote in favor of adjourning the meetings for this reason, this process will be repeated at any adjourned or postponed meeting until sufficient proxies to vote in favor of the merger of the partnership have been received or it appears that sufficient proxies will not be received. REQUIRED VOTE; BROKER NON-VOTES Approval of the merger proposals for each partnership requires the affirmative vote of the limited partners holding a majority of limited partnership interests in that partnership, except that Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P. each require the favorable vote of the holders, other than Pioneer USA, of 66 2/3% of its limited partnership interests to approve those merger proposals. Pioneer USA is entitled to vote its partnership interests on the merger proposals for each partnership except for the partnerships set forth under "The Special Meetings -- Record Date; Voting Rights and Proxies" on page 66. As a result, for each partnership in which Pioneer USA is entitled to vote, approval of at least a majority, and for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., at least 66 2/3%, of the unaffiliated limited partners is not required to approve the merger proposals. However, for each partnership in which Pioneer Parent is not entitled to vote, the approval of the unaffiliated limited partners is required to approve the merger proposals. Brokers, if any, who hold partnership interests in street name for customers have the authority to vote on "routine" proposals when they have not received instructions from beneficial owners. However, these brokers are precluded from exercising their voting discretion with respect to the approval and adoption of non-routine matters such as the merger proposals and thus, absent specific instructions from the beneficial owner of the partnership interests, brokers are not empowered to vote the partnership interests with respect to the merger proposals. These "broker non-votes" will have the effect of a vote against the merger proposals. PARTICIPATION BY ASSIGNEES Pioneer USA has the discretionary authority granted to it under each partnership agreement to withhold its consent to the substitution of any assignees as partners of the partnership. To facilitate the notification given to limited partners of each partnership about the merger of the partnership, Pioneer USA intends to exercise that authority and withhold its consent to the substitution of any assignees as partners of the partnership from September 21, 2001 until the earlier to occur of the closing date of the merger of the partnership, or the termination or abandonment of the transaction by Pioneer Parent and Pioneer USA. SPECIAL REQUIREMENTS FOR SOME LIMITED PARTNERS Pioneer USA may require that any proxy card executed by an entity, such as a trust, corporation, or partnership, be accompanied by evidence or an opinion of counsel that such entity: - has met all requirements of its governing instruments; and - is authorized to execute and deliver the proxy card under the laws of the jurisdiction under which the entity was organized. Pioneer USA will require the named trustee and the beneficial owner of trusts, including individual retirement accounts, to execute the proxy card. In some cases, Pioneer USA may provide a limited partner with an envelope, pre- addressed to his individual retirement account trustee, so that the limited partner may forward his executed proxy card to the trustee for the trustee's signature, if necessary, and subsequent delivery to Pioneer USA. Delivery of a proxy card to the trustee, with or without the use of a pre-addressed envelope, and delivery of a proxy card from the trustee to Pioneer USA are at the risk of the limited partner. VALIDITY OF PROXY CARDS A proxy card will not be valid unless it has been properly completed and executed and timely delivered to Pioneer USA's information agent with all other required documents. Pioneer USA will determine all questions as to the validity, form, eligibility, time of receipt and acceptance of a proxy card and its determination will be final and binding. Pioneer USA's interpretation of the terms and conditions of the merger of each partnership, including the instructions for the proxy card, will also be final and binding. A proxy card will not be valid until any irregularities have been cured or waived. If Pioneer USA does not waive the irregularities, it will return the defective proxy card to the limited partner as soon as practicable. Pioneer USA is under no duty to give notification of defects in a proxy card and will incur no liability if it fails to give such notification. 68 81 Delivery of a proxy card is at the risk of the limited partner. A proxy card will be effective for purposes of voting only when it is actually received by Pioneer USA's information agent. To ensure receipt of the proxy card and all other required documents, Pioneer USA suggests that limited partners use overnight courier delivery or certified or registered mail, return receipt requested. LOCAL LAWS Proxy solicitations will not be made to, nor will proxy cards be accepted from, limited partners of any partnership in any jurisdiction in which the solicitations would not be in compliance with federal and state securities or other laws. COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION The table below sets forth, for the calendar quarters indicated, the reported high and low closing prices of Pioneer Parent common stock as reported on the New York Stock Exchange Composite Transaction Tape, in each case based on published financial sources. Pioneer Parent's board of directors did not declare dividends to the holders of Pioneer Parent common stock during 1999, 2000 or the six months ended June 30, 2001. The determination of the amount of future cash dividends, if any, to be declared and paid is in the sole discretion of Pioneer Parent's board of directors and will depend on the following factors: - Pioneer Parent's financial condition; - earnings and funds from operations; - the level of Pioneer Parent's capital and exploration expenditures; - dividend restrictions in Pioneer Parent's financing agreements; - Pioneer Parent's future business prospects; and - other matters that Pioneer Parent's board of directors deems relevant. None of the partnership interests of any partnership are traded on a national stock exchange or in any other significant market. No liquid market exists for interests in any of the partnerships. See Table 15 of Appendix A for historical information about recent trades per $1,000 limited partner investment in each partnership for the seven months ended July 31, 2001 and the years ended December 31, 2000 and 1999. The average quarterly cash distributions per $1,000 limited partner investment in each partnership for 1999, 2000 and the year-to-date in 2001 are set forth in Table 7 of Appendix A. On April 16, 2001, the last full trading day prior to the announcement of the proposed merger of each partnership, Pioneer Parent common stock closed at $17.27 per share. On September 20, 2001, Pioneer Parent common stock closed at $15.89 per share.
PIONEER PARENT COMMON STOCK MARKET PRICE --------------- HIGH LOW ------ ------ 2001 Third quarter (through September 20, 2001)................ $19.38 $15.00 Second quarter............................................ 23.05 14.30 First quarter............................................. 20.24 15.45 2000 Fourth quarter............................................ 20.63 12.44 Third quarter............................................. 16.06 10.63 Second quarter............................................ 15.63 9.00 First quarter............................................. 10.75 6.75 1999 Fourth quarter............................................ 11.50 7.63 Third quarter............................................. 12.81 9.38 Second quarter............................................ 13.19 7.06 First quarter............................................. 9.75 5.00
We urge the limited partners of each partnership to obtain current market quotations prior to making any decision with respect to the merger of the partnership. 69 82 INTERESTS OF PIONEER PARENT, PIONEER USA AND THEIR DIRECTORS AND OFFICERS A number of conflicts of interest are inherent in the relationships among each partnership, Pioneer Parent, Pioneer USA and their respective directors and officers. CONFLICTING DUTIES OF PIONEER USA, INDIVIDUALLY AND AS GENERAL PARTNER Pioneer USA, as general partner of each partnership, has a duty to manage each partnership in the best interests of the limited partners. Pioneer USA also has a duty to operate its business for the benefit of its sole stockholder, Pioneer Parent. Consequently, Pioneer USA's duties to the limited partners of each partnership may conflict with its duties to Pioneer Parent. The members of the board of directors of Pioneer USA have a duty to cause Pioneer USA to manage each partnership in the best interests of the limited partners. All members of the board of directors of Pioneer USA are officers of Pioneer Parent and Pioneer USA. Thus, the members of the board of directors of Pioneer USA have duties to operate Pioneer USA's business for the benefit of its sole stockholder, Pioneer Parent, and, as officers of Pioneer Parent, to operate Pioneer Parent's business in its best interests. Consequently, the duties of the members of the board of directors of Pioneer USA to the limited partners may conflict with the duties of those members to Pioneer Parent, Pioneer USA and their stockholders. Neither Pioneer Parent nor Pioneer USA retained an independent representative to negotiate on behalf of the limited partners of each partnership because: - neither the partnership agreement for any partnership nor any applicable law provides for any procedure to identify and select an independent representative, unless each limited partner of the partnership agrees to the independent representative; - Pioneer USA, as sole or managing general partner of each partnership, still has its fiduciary duty to the limited partners; and - it would be (1) cost-prohibitive to find one or more persons to represent the limited partners in all of the partnerships because no one other than Pioneer USA owns an interest in all of the partnerships and (2) impractical to have 46 independent representatives. PIONEER USA'S EMPLOYEES PROVIDE SERVICES TO THE PARTNERSHIPS None of the partnerships currently has any employees. Each partnership relies on Pioneer USA's personnel. Pioneer USA provides all management functions on behalf of each partnership. Therefore, each partnership currently competes with Pioneer USA for the time and resources of Pioneer USA's employees. FINANCIAL INTERESTS OF DIRECTORS AND OFFICERS The directors and officers of Pioneer Parent and Pioneer USA have equity interests in Pioneer Parent through stock ownership, stock options and other stock-based compensation, but do not have financial or equity interests in any partnership. See "Ownership of Partnership Interests" on page 71. The boards of directors of Pioneer Parent and Pioneer USA believe that any economic benefit their directors and officers may obtain from the merger of each partnership, or the mergers of all of the partnerships in the aggregate, will be minimal, if any, and will not result in a material economic benefit, if any, to their directors and officers individually. THE PARTNERSHIPS PAY OPERATOR FEES TO PIONEER USA Pioneer USA operates most of each partnership's wells. Each partnership has entered into one or more standard industry operating agreements with Pioneer USA. Those operating agreements establish the base fee paid by the partnership to Pioneer USA for its lease operating services. That base fee adjusts annually based on a rate established by the Council of Petroleum Accountants Society, or COPAS, for the oil and gas industry. 70 83 OWNERSHIP OF PARTNERSHIP INTERESTS Pioneer Parent does not directly own any partnership interests in any partnership. Pioneer Parent beneficially owns all of Pioneer USA's partnership interests in each partnership. Table 6 of Appendix A to this document contains the voting percentage as of July 31, 2001, of the outstanding limited partnership interests for each partnership that are beneficially owned by Pioneer USA as a limited partner. As of July 31, 2001, no person or entity known by Pioneer USA beneficially owns more than 5% of the outstanding limited partnership interests in any partnership, except in Parker & Parsley 81-I, Ltd., Parker & Parsley 82-I, Ltd. and Parker and Parsley 82-III, Ltd. In those partnerships, Pioneer USA repurchased and now owns partnership interests representing the following beneficial ownership percentages: Parker & Parsley 81-I, Ltd. ................................ 5.84% Parker & Parsley 82-I, Ltd. ................................ 11.71% Parker & Parsley 82-III, Ltd. .............................. 5.97%
Pioneer USA has sole investment and voting power with respect to partnership interests it beneficially owns. Except as set forth above, none of Pioneer Parent, Pioneer USA, or, to the knowledge of Pioneer USA, any of their directors or executive officers, or any associate or majority-owned subsidiary of Pioneer Parent, Pioneer USA or any such director or officer: - beneficially owns any partnership interests of any partnership; or - has effected any transactions in any partnership interests of any partnership during the past 60 days. TRANSACTIONS AMONG ANY PARTNERSHIP, PIONEER PARENT, PIONEER USA AND THEIR DIRECTORS AND OFFICERS Except as described in this document, including the supplements for each partnership, there have not been any transactions, negotiations or material contacts between Pioneer Parent, Pioneer USA, any of their respective subsidiaries, or, to the knowledge of Pioneer Parent and Pioneer USA, any director or executive officer of Pioneer Parent or Pioneer USA or any associate of any such persons, on the one hand, and any partnership or any of its general partners, including Pioneer USA, directors, officers or affiliates, on the other hand, that are required to be disclosed pursuant to the rules and regulations of the SEC. Except as described in this document, none of Pioneer Parent, Pioneer USA, or, to the knowledge of Pioneer Parent and Pioneer USA, any director or executive officer of Pioneer Parent or Pioneer USA, has any agreement, arrangement or understanding with any other person with respect to any securities of any partnership. During March 2001, Pioneer Parent offered to acquire all of the direct oil and gas interests owned by some former officers and employees of Pioneer Parent and Pioneer USA in properties in which Pioneer Parent and Pioneer USA own interests. The merger value for the direct oil and gas interests was equal to the present value of estimated future net revenues from the oil and gas reserves attributable to the interests, as of March 31, 2001. In determining the present value, Pioneer Parent and Pioneer USA used (1) a five-year NYMEX futures price for oil and gas as of March 2001 with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 13.5% discount rate. The consideration offered in the purchases of the direct oil and gas interests was all cash since offering and registering Pioneer Parent common stock in those purchases was cost-prohibitive due to the small size of such transactions. Additionally, in December 2000, Pioneer Parent received the approval of the partners of 13 employee limited partnerships to merge with Pioneer USA for total merger consideration of $2.0 million. Of the total merger consideration, $0.3 million was paid to current Pioneer Parent employees. The merger value of each employee partnership was equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of September 30, 2000, less the cash distributions on October 15, 2000 and November 15, 2000, by that partnership to its partners. In determining the present value, Pioneer Parent and Pioneer USA used (1) a five-year NYMEX futures price for oil and gas as of August 25, 2000 with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 13.5% discount rate. Using the same parameters as described above, Pioneer Parent purchased all of the direct oil and gas interests held by Scott D. Sheffield, its chairman of the board of directors and chief executive officer, for $0.2 million during October 2000. The consideration paid in the mergers of the employee limited partnerships and the purchase of Mr. Sheffield's direct oil and gas interests was all cash. As with the purchases of the direct oil and gas interests described above, offering and 71 84 registering Pioneer Parent common stock in these transactions was cost-prohibitive due to the small size of such transactions. If you approve the merger of each partnership in which you own an interest, there are various ways that Pioneer USA may use the properties. Pioneer USA may continue to operate the properties, it may sell the properties to third parties, including a royalty trust, or it may spin off the properties to its stockholder. Although Pioneer USA plans to operate the properties in the immediate future following completion of the merger of each partnership, it has not decided how to use the properties in the long-term. 72 85 MANAGEMENT PIONEER PARENT The following information sets forth the age, business experience during the past five years, positions and offices with Pioneer Parent, and periods of service of each director and executive officer of Pioneer Parent.
NAME AGE POSITION ---- --- -------- Scott D. Sheffield................... 48 Chairman of the Board of Directors, President and Chief Executive Officer Timothy L. Dove...................... 44 Executive Vice President and Chief Financial Officer Dennis E. Fagerstone................. 52 Executive Vice President Mark L. Withrow...................... 53 Executive Vice President, General Counsel and Secretary Danny L. Kellum...................... 46 Executive Vice President -- Domestic Operations James R. Baroffio.................... 69 Director R. Hartwell Gardner.................. 66 Director James L. Houghton.................... 70 Director Jerry P. Jones....................... 69 Director Charles E. Ramsey, Jr. .............. 64 Director
Scott D. Sheffield. Mr. Sheffield, a distinguished graduate of the University of Texas with a Bachelor of Science degree in Petroleum Engineering, has been the Chairman of the Board of Directors of Pioneer Parent since August 1999 and the President and Chief Executive Officer of Pioneer Parent since August 1997. Mr. Sheffield was the Chairman of the Board of Directors, President and Chief Executive Officer of Parker & Parsley Petroleum Company from October 1990 until August 1997. He was the President and a director of Parker & Parsley Petroleum Company from May 1990 until October 1990. Mr. Sheffield was the sole director of Parker & Parsley Petroleum Company from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company, a predecessor of Parker & Parsley Petroleum Company, as a petroleum engineer in 1979. Mr. Sheffield served as Vice President -- Engineering of Parker & Parsley Development Company from September 1981 until April 1985, when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board of Directors and Chief Executive Officer of Parker & Parsley Development Company. Before joining Parker & Parsley Development Company 's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. Timothy L. Dove. Mr. Dove, a graduate of Massachusetts Institute of Technology with a Bachelor of Science degree in Mechanical Engineering and the University of Chicago with an M.B.A., has been Executive Vice President and Chief Financial Officer of Pioneer Parent since February 2000. He was Executive Vice President -- Business Development of Pioneer Parent from August 1997 until February 2000. Mr. Dove joined Parker & Parsley Petroleum Company in May 1994 as Vice President -- International and was promoted to Senior Vice President -- Business Development in October 1996, in which position he served until August 1997. Before joining Parker & Parsley Petroleum Company, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp., in various capacities in international exploration and production, marketing, refining, and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, has been an Executive Vice President of Pioneer Parent since August 1997. Mr. Fagerstone served as Executive Vice President and Chief Operating Officer of MESA Inc. from March 1997 until August 1997. Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of MESA Inc. from October 1996 to February 1997, and served as Vice President -- Exploration and Production of MESA Inc. from May 1991 to October 1996. Mr. Fagerstone served as Vice President -- Operations of MESA Inc. from June 1988 until May 1991. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a Bachelor of Science degree in Accounting and Texas Tech University with a J.D. degree, has been the Executive Vice President, General Counsel and Secretary of Pioneer Parent since August 1997. He served as Vice President -- General Counsel of Parker & Parsley Petroleum Company from February 1991 until January 1995, and served as Senior Vice President and General Counsel of Parker & Parsley Petroleum Company from January 1995 until August 1997. He was Parker & Parsley Petroleum Company's Secretary from August 1992 until August 1997. Mr. Withrow joined Parker & Parsley Development Company in January 1991. Before joining Parker & Parsley Development Company, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. 73 86 Danny L. Kellum. Mr. Kellum, a graduate of Texas Tech University with a Bachelor of Science degree in Petroleum Engineering in 1979, has been Executive Vice President -- Domestic Operations of Pioneer Parent since May 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President -- Domestic Operations. From August 1997 until December 1999, Mr. Kellum served as Vice President -- Permian Division. Mr. Kellum served as Spraberry District Manager for Parker & Parsley Petroleum Company from 1989 until 1994 and as Vice President of the Spraberry and Permian Divisions for Parker & Parsley Petroleum Company from 1994 until August 1997. He joined Parker & Parsley Petroleum Company in 1981 as Operations Engineer after a brief career with Mobil Oil Corporation. James R. Baroffio. Dr. Baroffio received a B.A. in Geology at the College of Wooster, Ohio, an M.S. in Geology at Ohio State University, and a Ph.D. in Geology at the University of Illinois. Before becoming a director of Pioneer Parent in December 1997, Dr. Baroffio enjoyed a long career with Standard Oil Company of California, the predecessor of Chevron Corporation, where he served as President, Chevron Research and Technology Center from 1980 to 1985 and eventually retired as President of Chevron Canada Resources in 1994. Dr. Baroffio was a member of the Board of Directors of the Rocky Mountain Oil & Gas Association and Chairman of the U.S. National Committee of the World Petroleum Congress. His community leadership positions included membership on the Board of Directors of Glenbow Museum and the Nature Conservancy of Canada, as well as serving as President of the Alberta Nature Conservancy. R. Hartwell Gardner. Mr. Gardner, a graduate of Colgate University with a Bachelor of Arts degree in Economics and Harvard University with an M.B.A., became a director of Pioneer Parent in August 1997. He served as a director of Parker & Parsley Petroleum Company from November 1995 until August 1997. Until his retirement in September 1995, Mr. Gardner was the Treasurer of Mobil Oil Corporation and Mobil Corporation from 1974 and 1976, respectively. Mr. Gardner is a member of the Financial Executives Institute of which he served as Chairman in 1986/1987 and is a Director of Oil Investment Corporation Ltd. and Oil Casualty Investment Corporation Ltd., Pembroke, Bermuda. James L. Houghton. Mr. Houghton is a certified public accountant and a graduate of Kansas University with a Bachelor of Science degree in Accounting, as well as a Bachelor of Law degree. Mr. Houghton has served as a director of Pioneer Parent since August 1997, and as a director of Parker & Parsley Petroleum Company from October 1991 until August 1997. Until his retirement in September 1991, Mr. Houghton was the lead oil and gas tax specialist for the accounting firm of Ernst & Young LLP, was a member of Ernst & Young's National Energy Group, and had served as its Southwest Regional Director of Tax. Mr. Houghton is a member of the American Institute of Certified Public Accountants, a member of the Oklahoma Society of Certified Public Accountants, a former Chairman of its Federal and Oklahoma Taxation Committee and past President of the Oklahoma Institute of Taxation. He has also served as a Director for the Independent Petroleum Association of America and as a member of its Tax Committee. Jerry P. Jones. Mr. Jones earned a Bachelor of Science degree from West Texas State College in 1953 and a Bachelor of Law degree from the University of Texas School of Law in 1959. Mr. Jones has served as a director of Pioneer Parent since August 1997, and as a director of Parker & Parsley Petroleum Company from May 1991 until August 1997. Mr. Jones has been an attorney with the law firm of Thompson & Knight, P.C., Dallas, Texas, since September 1959 and was a shareholder in that firm until January 1998, when he retired and became of counsel to the firm. Mr. Jones specialized in civil litigation, especially in the area of energy disputes. Charles E. Ramsey, Jr. Mr. Ramsey is a graduate of the Colorado School of Mines with a Petroleum Engineering degree and a graduate of the Smaller Company Management program at the Harvard Graduate School of Business Administration. Mr. Ramsey has served as a director of Pioneer Parent since August 1997. Mr. Ramsey served as a director of Parker & Parsley Petroleum Company from October 1991 until August 1997. Since October 1991, he has operated Ramsey Energy LLC, an independent management and financial consulting firm. From June 1958 until June 1986, Mr. Ramsey held various engineering and management positions in the oil and gas industry and, for six years before October 1991, was a Senior Vice President in the Corporate Finance Department of Dean Witter Reynolds Inc. in Dallas, Texas. His industry experience includes 12 years of senior management experience in the positions of President, Chief Executive Officer and Executive Officer and Executive Vice President of May Petroleum Inc. Mr. Ramsey is also a former director of MBank Dallas, the Dallas Petroleum Club and Lear Petroleum Corporation. 74 87 PIONEER USA The following information sets forth the age, business experience during the past five years, positions and offices with Pioneer USA, and periods of service of each director and executive officer of Pioneer USA.
NAME AGE POSITION ---- --- -------- Timothy L. Dove.................................. 44 Director, Executive Vice President and Chief Financial Officer Dennis E. Fagerstone............................. 52 Director and Executive Vice President Mark L. Withrow.................................. 53 Director, Executive Vice President, General Counsel and Secretary Danny L. Kellum.................................. 46 Director and Executive Vice President
Timothy L. Dove. Mr. Dove has been a Director of Pioneer USA since August 1997 and has been Executive Vice President and Chief Financial Officer of Pioneer USA since February 2000. He was the Executive Vice President -- Business Development of Pioneer USA from August 1997 until February 2000. He served as a Director of Parker & Parsley Petroleum USA, Inc. from June 1997 until August 1997. He was a Senior Vice President of Parker & Parsley Petroleum USA, Inc. from October 1996 until August 1997. He was a Vice President of Parker & Parsley Petroleum USA, Inc. from December 1995 until October 1996. Mr. Dove's other business experience and biographical information are set forth above under "Management -- Pioneer Parent." Dennis E. Fagerstone. Mr. Fagerstone has been a Director and an Executive Vice President of Pioneer USA since August 1997. Mr. Fagerstone's other business experience and biographical information are set forth above under "Management -- Pioneer Parent." Mark L. Withrow. Mr. Withrow has been a Director of Pioneer USA since August 1997. He became an Executive Vice President, the General Counsel and the Secretary of Pioneer USA in August 1997. He served as a Director of Parker & Parsley Petroleum USA, Inc. from January 1996 until August 1997. He was a Senior Vice President and the Secretary of Parker & Parsley Petroleum USA, Inc. from January 1995 until August 1997. He was a Vice President and the Secretary of Parker & Parsley Petroleum USA, Inc. from December 1993 until January 1995. He was a Vice President of Parker & Parsley Petroleum USA, Inc. from January 1991 until December 1993. Mr. Withrow's other business experience and biographical information are set forth above under "Management -- Pioneer Parent." Danny L. Kellum. Mr. Kellum has been a Director of Pioneer USA since February 2000, and has been Executive Vice President of Pioneer USA since May 2000. He served as Vice President -- Domestic Operations of Pioneer USA from January 2000 until May 2000, as Vice President -- Permian Division of Pioneer USA from April 1998 until December 1999 and as Vice President -- Spraberry Division of Pioneer USA from December 1997 until March 1998. Mr. Kellum's other business experience and biographical information are set forth above under "Management -- Pioneer Parent." PIONEER PARENT Pioneer Parent is a large independent exploration and production company with total proved reserves equivalent to 3.8 trillion cubic feet of natural gas, or 628 million barrels of oil. Pioneer Parent's proved reserves are balanced equally between natural gas and oil, and Pioneer Parent has a reserves-to-production ratio of 14 years. Three core areas in the United States comprise 67% of Pioneer Parent's reserve base: the Hugoton gas field, the West Panhandle gas field, and the Spraberry oil and natural gas field. Pioneer Parent also has domestic properties in East Texas, the Gulf Coast, and the offshore Gulf of Mexico as well as a significant international presence through its properties in Argentina, Canada, South Africa, and Gabon. Pioneer Parent seeks to increase net asset value and production by combining lower risk development drilling with higher risk exploration activity. Pioneer Parent has identified over 1,700 development drilling locations on its properties in the U.S., Argentina and Canada. Approximately 76% of the identified 1,700 development drilling locations have proved undeveloped reserves attributable to them. Pioneer Parent's exploration program is focused in the deepwater Gulf of Mexico, the Gulf Coast shelf, South Africa and Gabon. Pioneer Parent expects significant new production from the deepwater Gulf of Mexico and South Africa in 2002 and 2003 as it builds on its recent exploration successes in those areas. The production from Pioneer Parent's long-lived reserves in the Spraberry, Hugoton and West Panhandle fields are expected to provide stable cash flows to fund Pioneer Parent's development and exploration activities. 75 88 During 2000, Pioneer Parent spent $340 million for capital expenditures to add 437 billion cubic feet of natural gas equivalent reserves. As a consequence, in 2000 Pioneer Parent replaced 167% of its production at an acquisition and finding cost of $.78 per Mcf equivalent. Pioneer Parent's acquisition and finding cost is the result obtained by dividing total costs incurred by the sum of revisions of previous estimates, purchases of minerals-in-place and new discoveries and extensions. Pioneer Parent drilled 296 wells with 90% success worldwide, including 83 exploration and extension wells with 73% success. For 2001, Pioneer Parent has budgeted $480 million of capital expenditures, a 41% increase over 2000 capital expenditures but slightly less than expected available cash flow. Approximately 73% of the 2001 capital expenditure budget is for development activities with the remaining 27% for exploration. Pioneer Parent plans to drill approximately 460 development wells and 26 exploratory wells in its 2001 program, and approximately 65% of the capital expenditures will be for drilling activities in the U.S. KEY PROJECTS TO INCREASE PRODUCTION Pioneer Parent expects to increase its production of oil and gas from current levels by 25% to 30% on a gas equivalent basis by early to mid 2003, primarily from four projects. The production increases anticipated from the four projects are derived from currently booked proved undeveloped reserves. The projects in general build on Pioneer Parent's recent exploration successes. - The Canyon Express project is a joint development of three deepwater Gulf of Mexico discoveries, including Pioneer Parent's Aconcagua and Camden Hills fields. The project is being developed with a capacity to deliver 500 million cubic feet of natural gas per day by the summer of 2002. Pioneer Parent owns an 18% interest in the Canyon Express project and expects that production from the project will increase Pioneer Parent's North American natural gas production by 30% from current levels. - Pioneer Parent's first well in offshore South Africa confirmed the presence of commercial oil reserves and resulted in Pioneer Parent's plans to develop the Sable oil field. First production from the field is expected in late 2002 or early 2003 at daily rates of 25 to 30 thousand barrels per day. Pioneer Parent has a 40% working interest in the field, and production from the project is expected to increase Pioneer Parent's total oil production by more than 20%. Pioneer Parent has also discovered oil and natural gas at its Boomslang prospect in offshore South Africa. - The Devils Tower discovery was Pioneer Parent's second in the deepwater Gulf of Mexico. The oil field has been successfully appraised, and development plans call for first production in early 2003. Pioneer Parent has a 25% working interest in the field, and production from the field is expected to increase Pioneer Parent's total oil production by approximately 20% from current levels. MORE INFORMATION A more complete description of Pioneer Parent and its business is found in the reports that Pioneer Parent files with the SEC. Please see "Where You Can Find More Information" on the inside front cover page of this document. Pioneer Parent's business, and its expectations about its future, are subject to many risks. Please also read "Risks Associated with an Investment in Pioneer Parent" under the caption "Risk Factors" beginning on page 20 of this document. 76 89 THE PARTNERSHIPS GENERAL Pioneer USA's predecessor, Parker & Parsley Petroleum USA, Inc. or its predecessors or affiliates, sponsored each partnership. As a result of the merger of Parker & Parsley Petroleum Company and MESA Inc. to form Pioneer Parent on August 7, 1997, Pioneer USA became the managing or sole general partner of each partnership. Appendix A to this document sets forth information about each partnership, including proved reserves as of December 31, 2000, estimated reserves as of March 31, 2001, oil and gas production, average sales prices and production costs, productive wells and developed acreage, and historical cash distributions. In addition, the supplement for each partnership constitutes an integral part of this document. You should read Appendix A and the supplement carefully in their entirety. THE DRILLING PARTNERSHIPS The drilling partnerships consist of the following 43 limited partnerships that were formed from 1981 through 1991:
STATE OF NAME FORMATION ---- --------- Parker & Parsley 81-I, Ltd.................................. Texas Parker & Parsley 81-II, Ltd................................. Texas Parker & Parsley 82-I, Ltd.................................. Texas Parker & Parsley 82-II, Ltd................................. Texas Parker & Parsley 82-III, Ltd................................ Texas Parker & Parsley 83-A, Ltd.................................. Texas Parker & Parsley 83-B, Ltd.................................. Texas Parker & Parsley 84-A, Ltd.................................. Texas Parker & Parsley 85-A, Ltd.................................. Texas Parker & Parsley 85-B, Ltd.................................. Texas Parker & Parsley Private Investment 85-A, Ltd............... Texas Parker & Parsley Selected 85 Private Investment, Ltd........ Texas Parker & Parsley 86-A, Ltd.................................. Texas Parker & Parsley 86-B, Ltd.................................. Texas Parker & Parsley 86-C, Ltd.................................. Texas Parker & Parsley Private Investment 86, Ltd................. Texas Parker & Parsley 87-A Conv., Ltd............................ Texas Parker & Parsley 87-A, Ltd.................................. Texas Parker & Parsley 87-B Conv., Ltd............................ Texas Parker & Parsley 87-B, Ltd.................................. Texas Parker & Parsley Private Investment 87, Ltd................. Texas Parker & Parsley 88-A Conv., L.P............................ Delaware Parker & Parsley 88-A, L.P.................................. Delaware Parker & Parsley 88-B Conv., L.P............................ Delaware Parker & Parsley 88-B L.P................................... Delaware Parker & Parsley 88-C Conv., L.P............................ Delaware Parker & Parsley 88-C, L.P.................................. Delaware Parker & Parsley Private Investment 88, L.P................. Delaware Parker & Parsley 89-A Conv., L.P............................ Delaware Parker & Parsley 89-A, L.P.................................. Delaware Parker & Parsley 89-B Conv., L.P............................ Delaware Parker & Parsley 89-B, L.P.................................. Delaware Parker & Parsley Private Investment 89, L.P................. Delaware Parker & Parsley 90-A Conv., L.P............................ Delaware Parker & Parsley 90-A, L.P.................................. Delaware Parker & Parsley 90-B Conv., L.P............................ Delaware Parker & Parsley 90-B, L.P.................................. Delaware Parker & Parsley 90-C Conv., L.P............................ Delaware
77 90
STATE OF NAME FORMATION ---- --------- Parker & Parsley 90-C, L.P.................................. Delaware Parker & Parsley Private Investment 90, L.P................. Delaware Parker & Parsley 90 Spraberry Private Development, L.P...... Delaware Parker & Parsley 91-A, L.P.................................. Delaware Parker & Parsley 91-B, L.P.................................. Delaware
Each drilling partnership was formed to establish long-lived oil and gas reserves primarily by drilling low-risk development wells in the Spraberry field of the Permian Basin of West Texas. The oil and gas properties of each drilling partnership consist primarily of leasehold interests in producing properties located in Texas. The partners of a drilling partnership received a tax benefit from drilling activities in the partnership's first year. Subsequently, each drilling partnership has regularly distributed its net cash flow. As of the date of this document, each drilling partnership has expended all of its initial capital contributions. For a discussion of transactions between each drilling partnership and Pioneer USA, see the notes to the financial statements of each drilling partnership included in the supplement for the partnership. THE INCOME PARTNERSHIPS The income partnerships consist of the following three limited partnerships that were formed in 1987 and 1988:
STATE OF NAME FORMATION ---- --------- Parker & Parsley Producing Properties 87-A, Ltd............. Texas Parker & Parsley Producing Properties 87-B, Ltd............. Texas Parker & Parsley Producing Properties 88-A, L.P............. Delaware
The primary objective of each income partnership was to acquire long-lived, producing oil and gas properties in the Spraberry field of the Permian Basin of West Texas. Subsequently, each income partnership has regularly distributed its net cash flow. As of the date of this document, each income partnership has expended all of its initial capital contributions. For a discussion of transactions between each income partnership and Pioneer USA, see the notes to the financial statements of each income partnership included in the supplement for the partnership. 78 91 COMPARISON OF RIGHTS OF STOCKHOLDERS AND PARTNERS GENERAL The rights of Pioneer Parent stockholders are currently governed by the Delaware General Corporation Law and the certificate of incorporation and bylaws of Pioneer Parent. The rights of the limited partners of each partnership are currently governed by the Delaware Revised Uniform Limited Partnership Act or the Texas Revised Limited Partnership Act and, in either case, the partnership agreement of the partnership. Accordingly, on completion of the merger of each partnership, the rights of Pioneer Parent stockholders and of limited partners who become Pioneer Parent stockholders in the merger of their partnerships will be governed by the Delaware General Corporation Law, Pioneer Parent's certificate of incorporation and Pioneer Parent's bylaws. The following is a summary of the material differences between the current rights of Pioneer Parent stockholders and those of the limited partners of each partnership. The following summary of the material differences between the Pioneer Parent certificate of incorporation, the Pioneer Parent bylaws and the partnership agreement for each partnership may not contain all the information that is important to you. To review all provisions and differences of such documents in full detail, please read the full text of these documents, the Delaware General Corporation Law, the Delaware Revised Uniform Limited Partnership Act and the Texas Revised Limited Partnership Act. Copies of the Pioneer Parent certificate of incorporation, the Pioneer Parent bylaws and the partnership agreement for each partnership in which you own an interest will be sent to you upon request. For information on how these documents may be obtained, see "Where You Can Find More Information" on the inside front cover page of this document. Pioneer Parent's certificate of incorporation and bylaws will not be amended in conjunction with the merger of any partnership. 79 92 SUMMARY COMPARISON OF TERMS OF SHARES OF PIONEER PARENT COMMON STOCK AND PARTNERSHIP INTERESTS
-------------------------------------------------------------------------------------------------------- SHARES PARTNERSHIP INTERESTS -------------------------------------------------------------------------------------------------------- LIQUIDITY AND MARKETABILITY -------------------------------------------------------------------------------------------------------- Shares of Pioneer Parent common stock are The partnership interests of each partnership may generally freely transferable. The shares of not be transferred if, in the opinion of counsel Pioneer Parent common stock that are currently to the partnership, (1) such transfers would outstanding are traded on the New York Stock result in the termination of the partnership for Exchange and the Toronto Stock Exchange, and the federal income tax purposes under Section 708 of shares of Pioneer Parent common stock to be issued the Internal Revenue Code, or (2) such transfers in the merger of each participating partnership may not be effected without registration under the have been approved for listing on the New York Securities Act of 1933 or would result in the Stock Exchange and the Toronto Stock Exchange upon violation of any applicable state securities laws. official notice of issuance. Clause (1) is not applicable to Parker & Parsley 85-A, Ltd., Parker & Parsley 85-B, Ltd., Parker & Parsley Private Investment 85-A, Ltd., Parker & Parsley Selected 85 Private Investment, Ltd., Parker & Parsley Private Investment 86, Ltd., Parker & Parsley 87-A Conv., Ltd., Parker & Parsley 87-A, Ltd., Parker & Parsley 87-B Conv., Ltd. and Parker & Parsley 87-B, Ltd. and Parker & Parsley Private Investment 87, Ltd. In addition, no transferee of a partnership interest has the right to become a substitute limited partner unless, among other things, such substitution is approved by Pioneer USA, which may grant or withhold such consent in its absolute discretion. In view of the foregoing restrictions, it was never intended that the partnership interests would be actively traded. No broad-based secondary market for the partnership interests of any partnership exists. -------------------------------------------------------------------------------------------------------- RIGHTS OF REPURCHASE -------------------------------------------------------------------------------------------------------- Pioneer Parent's stockholders have no right to Within the time periods specified in the present their shares of Pioneer Parent common partnership agreements of Parker & Parsley 82-I, stock for repurchase by Pioneer Parent or any Ltd., Parker & Parsley 82-II, Ltd., Parker & other person. Parsley 82-III, Ltd., Parker & Parsley 83-A, Ltd., Parker & Parsley 83-B, Ltd. and Parker & Parsley 84-A, Ltd., a limited partner of any of those partnerships may tender all or, subject to some limitations, part of his partnership interests in the partnership to Pioneer USA for repurchase in accordance with the partnership agreement for the partnership. See "Risk Factors -- Risk Factors Relating to the Merger of Each Partnership -- Repurchase Rights Terminate on Completion of the Mergers." A comparison of the merger value for each of these partnerships and the repurchase prices in 2001 is set forth in Table 8 of Appendix A. --------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------- SHARES PARTNERSHIP INTERESTS -------------------------------------------------------------------------------------------------------- MANAGEMENT, MANAGEMENT LIABILITY AND INDEMNIFICATION -------------------------------------------------------------------------------------------------------- Pioneer Parent is managed by a board of directors Each of the partnerships is managed by Pioneer elected by its stockholders. Under Delaware law, USA, which generally has exclusive authority over the directors are accountable to Pioneer Parent each of the partnership's operations. The limited and its stockholders as fiduciaries and are partners may not participate in management of the required to perform their duties (1) in good partnerships. Under Delaware and Texas law, faith, (2) in a manner believed to be in the best Pioneer USA and any nonmanaging general partners interests of Pioneer Parent and its stockholders of any of the partnerships are accountable to the and (3) with such care, including reasonable partnership as fiduciaries and consequently are inquiry, as an ordinarily prudent person in a like required to exercise good faith and integrity in position would use under similar circumstances. all of their dealings with respect to the affairs The liability of the directors is limited pursuant of the partnership. Under Texas or Delaware law, to the provisions of Delaware law and Pioneer as applicable, Pioneer USA and any nonmanaging Parent's certificate of incorporation, which general partners of any of the partnerships have limits a director's liability for monetary damages liability for the payment of partnership to Pioneer Parent or its stockholders for breach obligations and debts, unless limitations upon of the director's duty of care, where a director such liability are expressly stated in the fails to exercise sufficient care in carrying out obligation. The partnership agreement of each the responsibilities of office. Such provisions, partnership provides generally that Pioneer USA, however, would not protect a director for (1) a any nonmanaging general partners of the breach of duty of loyalty, (2) intentional partnership and, in some cases, their affiliates misconduct or knowing violations of law, (3) will be indemnified for losses relating to acts unlawful dividend payments or redemption of stock, performed or omitted to be performed in good faith or (4) any transaction in which the director and in the best interests of the partnership; derived an improper personal benefit. Such provided that the conduct of Pioneer USA, any such provisions do not foreclose any other remedy which nonmanaging general partner or affiliate, as might be available to Pioneer Parent or its applicable, did not constitute negligence or stockholders. Pioneer Parent's certificate of misconduct. Pioneer USA and any nonmanaging incorporation and Delaware law provide broad general partners of the partnership may be removed indemnification rights to directors and officers by an affirmative vote of limited partners holding who a majority of the outstanding limited partnership interests in the partnership; provided, that an - act in good faith, opinion of counsel to the limited partners and acceptable to the partnership is delivered to the - in a manner reasonably believed to be in or not partnership to the effect that the exercise of opposed to the best interests of Pioneer Parent such rights by the limited partners (1) will not and, result in the loss of the limited partners' limited liability and (2) will not adversely - with respect to criminal actions or proceedings, affect the tax status of the partnership, Pioneer without reasonable cause to believe their USA or the other partners. conduct was unlawful. Pioneer Parent's certificate of incorporation also requires Pioneer Parent to indemnify its officers and directors under some circumstances for expenses or liabilities incurred as a result of litigation. In addition, Pioneer Parent's certificate of incorporation authorizes Pioneer Parent to advance expenses incurred in the defense of its directors and officers. Pioneer Parent intends to take full advantage of those provisions and has entered into agreements with Pioneer Parent's directors and officers indemnifying them to the fullest extent permitted by Delaware law. --------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------- SHARES PARTNERSHIP INTERESTS -------------------------------------------------------------------------------------------------------- MANAGEMENT COMPENSATION -------------------------------------------------------------------------------------------------------- The board of directors of Pioneer Parent appoints Each partnership reimburses Pioneer USA for its officers to serve at the discretion of the board general and administrative expenses. of directors. The board of directors of Pioneer Parent determines the officer salaries and incentive compensation; provided, that the board of directors of Pioneer Parent may delegate the power to determine such compensation to the chairman of the board, the president or any committee of the board of directors. -------------------------------------------------------------------------------------------------------- MANAGEMENT CONTROL -------------------------------------------------------------------------------------------------------- Pioneer Parent's board of directors has exclusive Under the partnership agreement of each control over Pioneer Parent's business and affairs partnership, Pioneer USA is generally vested with subject only to the restrictions in Pioneer all management authority to manage, control, Parent's certificate of incorporation and bylaws. administer and operate the business, properties Pioneer Parent's stockholders have the right to and affairs of the partnership, including elect members of the board of directors by a authority and responsibility for overseeing all plurality vote at each annual meeting of the executive, supervisory and administrative services stockholders. The directors are accountable to rendered to the partnership. Pioneer USA and any Pioneer Parent and its subsidiaries as nonmanaging general partners have the right to fiduciaries. continue to serve in such capacity unless Pioneer USA or such nonmanaging general partner is removed upon the affirmative vote of limited partners holding a majority of the outstanding limited partnership interests in the partnership; provided, that an opinion of counsel to the limited partners, and acceptable to the partnership, is delivered to the partnership to the effect that the exercise of such rights by the limited partners (1) will not result in the loss of the limited partners' limited liability and (2) will not adversely affect the tax status of the partnership, Pioneer USA or the other partners. The limited partners of each partnership have no right to participate in the management and control of the partnership and have no voice in the partnership's affairs except for some limited matters that may be submitted to a vote of the limited partners under the terms of the partnership agreement of the partnership. See "Voting Rights and Amendments" below. Pioneer USA is accountable as a fiduciary to each partnership. --------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------- SHARES PARTNERSHIP INTERESTS -------------------------------------------------------------------------------------------------------- VOTING RIGHTS AND AMENDMENTS -------------------------------------------------------------------------------------------------------- Pioneer Parent's certificate of incorporation Generally, meetings of each partnership may be provides that (1) stockholders of Pioneer Parent called by Pioneer USA or by limited partners may act only at annual or special meetings of owning at least 10% of the outstanding limited stockholders and not by written consent, (2) partnership interests. The limited partners may Pioneer Parent will hold an annual meeting each conduct any partnership business at such meeting calendar year at which its stockholders will elect which is permitted under the partnership agreement directors, (3) special meetings of stockholders for such partnership and is specified in the may be called only by the board of directors, and notice of such meeting, but the limited partners (4) only business proposed by the board of may not engage in any activity which would be directors may be considered at special meetings of deemed taking part in the management or control of stockholders. the partnership's business. -------------------------------------------------------------------------------------------------------- Most amendments to Pioneer Parent's certificate of Amendments to the partnership agreement of each incorporation require the approval of the partnership generally require the approval by stockholders who own a majority of the outstanding limited partners holding a majority of outstanding shares of Pioneer Parent common stock. A number of limited partnership interests in the partnership. fundamental amendments, however, require approval An amendment that has any of the following effects by a greater percentage of stockholders. For requires the unanimous approval of Pioneer USA and example, any amendment to the following provisions the limited partners: (1) increases the liability requires the approval of two-thirds of the or duties of any of the partners, (2) changes the stockholders: (1) election of directors, (2) contributions required of the partners, (3) authority of the board of directors, (3) provides for any reallocation of profits, losses stockholder meetings and (4) limitation on the or deductions to the detriment of a partner, (4) liability of directors. Any amendment to the establishes any new priority in one or more provision that prohibits action by the written partners as to the return of capital contributions consent of the stockholders in lieu of a meeting or as to profits, losses, deductions or requires the approval of 80% of the stockholders. distribution to the detriment of a partner, or (5) In addition, the following actions require the causes the partnership to be taxed as a approval of 80% of the stockholders and the corporation. Pioneer USA may, in its sole approval of two-thirds of the disinterested discretion, adopt any of the following amendments: stockholders: (1) any merger, consolidation or (1) change the name of the partnership, (2) change share exchange involving any person, other than the location of the principal place of business of Pioneer Parent or a subsidiary of Pioneer Parent, the partnership, (3) admit a new or substitute who beneficially owns 10% or more of the limited partner, (4) modify its general outstanding voting securities of Pioneer Parent, partnership interest as a result of a transfer of which person we call a related party, (2) some a portion of such interest, (5) correct a sales, leases, exchanges or similar transactions typographical error, or (6) any other similar with related parties, (3) some issuances of change where the Pioneer USA determines that the securities to related parties, (4) adoption of any amendment will not adversely affect the limited plan or proposal for liquidation of Pioneer Parent partners and Pioneer USA believes the amendment is initiated by related parties, or (5) any series or necessary or advisable to qualify the partnership combination of any of the actions described in under the laws of a state in which it engages or clauses (1) through (4). proposes to engage in business or to keep the partnership from being treated as a corporation for tax purposes. --------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------- SHARES PARTNERSHIP INTERESTS -------------------------------------------------------------------------------------------------------- ANTI-TAKEOVER PROVISIONS -------------------------------------------------------------------------------------------------------- The certificate of incorporation and bylaws of There are no anti-takeover provisions in the Pioneer Parent and the Delaware General partnership agreement for any of the partnerships Corporation Law include a number of provisions or under Delaware or Texas partnership law. which may have the effect of encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with Pioneer Parent's board of directors rather than pursue non-negotiated takeover attempts. These provisions include (1) a classified board of directors, (2) advance notice requirements for shareholder proposals and director nominations, (3) restrictions on certain business combinations and (4) prohibition against actions approved by written consent without the approval of a specified percentage of the shareholders. In addition, Pioneer Parent has adopted a rights plan and distributed to each holder of its common stock and Canadian exchangeable shares rights to acquire shares of Series A Junior Participating Preferred Stock in certain circumstances. The rights plan, which is also known as a "poison pill," is intended to prevent any person from accumulating a significant position in Pioneer Parent's voting stock without approval of Pioneer Parent's board of directors. -------------------------------------------------------------------------------------------------------- CONTINUITY OF EXISTENCE -------------------------------------------------------------------------------------------------------- Pioneer Parent has a perpetual existence. Except for the following partnerships, each partnership has a finite life of 50 years from the year of its formation. The following partnerships continue until terminated by mutual agreement of the partners of the partnership: Parker & Parsley 81-I, Ltd. Parker & Parsley 81-II, Ltd. Parker & Parsley 82-I, Ltd. Parker & Parsley 82-II, Ltd. Parker & Parsley 82-III, Ltd. Parker & Parsley 83-A, Ltd. Parker & Parsley 83-B, Ltd. Parker & Parsley 84-A, Ltd. --------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------- SHARES PARTNERSHIP INTERESTS -------------------------------------------------------------------------------------------------------- LIMITED LIABILITY -------------------------------------------------------------------------------------------------------- A stockholder's liability will generally be Assuming the limited partners of a partnership do limited to such stockholder's contribution to not take part in the management or control of the Pioneer Parent's capital. Under Delaware law, business of such partnership, a limited partner's Pioneer Parent's stockholders will not be liable liability is generally limited to the limited for Pioneer Parent's debts or obligations. The partner's contribution to the capital of the shares of Pioneer Parent common stock offered by partnership and such limited partner's share of Pioneer Parent under this document, upon issuance, assets and undistributed profits of the will be fully paid and nonassessable. partnership. A limited partner will receive a return of the limited partner's capital contribution to the partnership to the extent that a distribution to the limited partner reduces the limited partner's share of the fair value of the partnership's net assets below the value of the limited partner's unreturned capital contributions. A substituted limited partner is subject to the liabilities and obligations of the substituted limited partner's assignor, except those liabilities of which the substituted limited partner was unaware at the time he became a substituted limited partner and which could not be ascertained from the partnership agreement of the partnership. -------------------------------------------------------------------------------------------------------- BUSINESS ACTIVITIES AND FINANCING -------------------------------------------------------------------------------------------------------- Pioneer Parent's mission is to provide its The business operations of each partnership have stockholders with superior investment returns consisted of the acquisition, development and through strategies that maximize Pioneer Parent's production of oil and gas reserves. Each long-term profitability and net asset values. The partnership has expended its initial partnership strategies employed to achieve this mission are capital, and additional properties cannot be anchored by Pioneer Parent's long-lived Spraberry acquired. Operations can be financed only through oil and gas field and Hugoton and West Panhandle permitted borrowings, reinvestment of earnings not gas fields' reserves and production. Underlying distributed, permitted assessments, or permitted these fields are approximately 67% of Pioneer sales of assets. Each partnership generally is Parent's proved oil and gas reserves which have a required to distribute to its partners all or remaining productive life in excess of 40 years. substantially all its net cash flow from The stable base of oil and gas production from operations, after provision for any reserves these fields generates operating cash flows that deemed appropriate by Pioneer USA. allow Pioneer Parent the financial flexibility to selectively reinvest capital: - to develop and increase production from existing properties through low-risk development drilling activities; - to leverage cost containment opportunities to achieve operating and technical efficiencies; and - to pursue strategic acquisitions in Pioneer Parent's core areas that will complement Pioneer Parent's existing asset base and provide additional growth opportunities. --------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------- SHARES PARTNERSHIP INTERESTS -------------------------------------------------------------------------------------------------------- Pioneer Parent also has the financial flexibility to use portions of its operating cash flows: - to selectively expand into new geographic areas that feature producing properties and provide exploration or exploitation opportunities; - to invest in the personnel and technology necessary to increase Pioneer Parent's exploration opportunities; and - to enhance liquidity. This flexibility allows Pioneer Parent to take advantage of future exploration, development and acquisition opportunities. Pioneer Parent may engage in any phase of the oil and gas business and any other lawful business. Pioneer Parent may finance its operations and the acquisition of additional properties through, among other things, the issuance of additional shares of Pioneer Parent common stock, borrowings, and the reinvestment of earnings not distributed to stockholders. -------------------------------------------------------------------------------------------------------- FINANCIAL REPORTING -------------------------------------------------------------------------------------------------------- Pioneer Parent is subject to the reporting For a list of the partnerships that are subject to requirements of the Securities Exchange Act of the reporting requirements of the Securities 1934. Exchange Act of 1934, see "Where You Can Find More Information" on the inside front cover page of this document. In addition, the partnership agreement of each partnership requires that some reports be delivered to the limited partners. -------------------------------------------------------------------------------------------------------- TAX INFORMATION -------------------------------------------------------------------------------------------------------- "Double taxation" at the corporate and stockholder None of the partnerships is a taxable entity for levels typically results when a corporation such federal income tax purposes. The partners of each as Pioneer Parent earns income and distributes partnership are required to take into account that income to its stockholders in the form of their pro rata share of the partnership's income, dividends. Stockholders will only recognize income gains, losses, and deductions, regardless of on amounts actually distributed by Pioneer Parent. whether they receive any cash distributions from Distributions made by Pioneer Parent out of the partnership. Some partners may be entitled to current or accumulated earnings and profits are percentage depletion. A partner will be required taxed as dividend income. Distributions in excess to recapture some deductions and credits upon the of current or accumulated earnings and profits are sale of all or a portion of his partnership treated as a non-taxable return of basis to the interests. extent of stockholders' adjusted basis in their shares, with the excess taxed as capital gain. --------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------- SHARES PARTNERSHIP INTERESTS -------------------------------------------------------------------------------------------------------- Dividends, if any, received by stockholders from A partner's share of a partnership's income and Pioneer Parent generally will constitute portfolio loss will be subject to the "passive activity" income, and cannot be offset with losses from limitations. Under the passive activity rules, "passive activities." Losses and credits generated losses of a partner arising from his ownership of within Pioneer Parent do not pass through to the partnership interests may be used to offset stockholders. After the end of Pioneer Parent's passive income from another passive investment and taxable year, stockholders will receive Form income of a partner arising from his ownership of 1099-DIV to report their dividend income. partnership interests may only be offset with passive losses from another passive investment. For a discussion of the tax consequences associated with the merger of each partnership, see "The Merger of Each Partnership -- Material U.S. Federal Income Tax Consequences." -------------------------------------------------------------------------------------------------------- DIVIDEND OR DISTRIBUTION POLICY AND PARTICIPATION IN PROFITS AND LOSSES -------------------------------------------------------------------------------------------------------- The shares of Pioneer Parent common stock For a description of the distribution policies of constitute equity interests in Pioneer Parent. each partnership, see "Risk Factors -- Risks Each stockholder will be entitled to his pro rata Associated with an Investment in Pioneer share of the dividends made with respect to the Parent -- Pioneer Parent Might Not Declare Pioneer Parent common stock. The dividends payable Dividends." The average quarterly cash to the stockholders are not fixed in amount and distributions by each partnership for 1999, 2000 are only paid if, as and when declared by Pioneer and the year-to-date in 2001 are set forth in Parent's board of directors. Dividends payable Table 7 of Appendix A. For a description of the with respect to the shares of Pioneer Parent provisions of the partnership agreement of each common stock depend upon the performance of partnership governing the allocation of costs and Pioneer Parent. revenues among the partnership's partners, see Table 9 of Appendix A. --------------------------------------------------------------------------------------------------------
LEGAL MATTERS Vinson & Elkins L.L.P., of Dallas, Texas, counsel to Pioneer Parent, will pass upon the validity of the Pioneer Parent common stock to be issued upon the merger of each partnership and material federal income tax matters related to the merger of each partnership. The special legal counsel to the limited partners for the limited purpose of rendering certain opinions, Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, will deliver the legal opinion referred to in "The Merger of Each Partnership -- Legal Opinion for Limited Partners" on page 53 of this document. That special counsel may rely as to matters of law of the State of Texas on the opinion of Arter & Hadden LLP, of Dallas, Texas. INDEPENDENT AUDITORS AND INDEPENDENT PETROLEUM CONSULTANTS The consolidated financial statements of Pioneer Parent appearing in its Annual Report (Form 10-K) for the year ended December 31, 2000, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report, which is incorporated by reference into this document. Such consolidated financial statements are incorporated by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The financial statements of each partnership listed on pages 4 and 5 of this document at December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports included in the supplemental information to this document for each partnership. Such financial statements are included in the supplemental information of each partnership in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. Williamson Petroleum Consultants, Inc., independent petroleum consultants, estimated each partnership's reserves as of December 31, 2000, and reviewed Pioneer Parent's and Pioneer USA's estimates of each partnership's reserves as of March 31, 2001 and the present value of the estimated future net revenues from those estimated reserves included in the summary reserve reports included in this document and such summary reserve reports and estimates and the review as of March 31, 2001, are included in this document in reliance upon their reports given upon their authority as experts on the matters covered by the summary reserve report and review. 87 100 COMMONLY USED OIL AND GAS TERMS The definitions set forth below shall apply to the indicated terms as used in this document. All volumes of natural gas referred to herein are stated at the legal pressure base of the state or area where the reserves exist and at 60 degrees Fahrenheit and in most instances are rounded to the nearest major multiple. "Bbl" means a standard barrel of 42 U.S. gallons and represents the basic unit for measuring the production of crude oil, natural gas liquids and condensate. "Bcf" means one billion cubic feet under prescribed conditions of pressure and temperature and represents the basic unit for measuring the production of natural gas. "BOE" means a barrel-of-oil-equivalent and is a customary convention used in the United States to express oil and gas volumes on a comparable basis. It is determined on the basis of the estimated relative energy content of natural gas to oil, being approximately six Mcf of natural gas per Bbl of oil. "BTU" means British thermal unit. "development drilling" means drilling within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive. "exploration activity" means drilling activity to find and produce oil or natural gas in an area that is not known to be an oil or natural gas reservoir, or drilling activity to extend a known reservoir. "Mbbl" means one thousand Bbls. "MBOE" means one thousand BOEs. "Mcf" means one thousand cubic feet under prescribed conditions of pressure and temperature and represents the basic unit for measuring the production of natural gas. "MMBbl" means one million Bbls. "MMcf" means one million cubic feet under prescribed conditions of pressure and temperature and represents the basic unit for measuring the production of natural gas. "NGLs" means natural gas liquids. "proved reserves" means the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. (i) Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (B) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the power proved limit of the reservoir. (ii) Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the "proved" classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based. (iii) Estimates of proved reserves do not include the following: (A) oil that may become available from known reservoirs but is classified separately as "indicated additional reserves"; (B) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; (C) crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and (D) crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite and other such sources. 88 101 PIONEER NATURAL RESOURCES COMPANY UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS INTRODUCTORY STATEMENTS The unaudited pro forma combined financial statements of Pioneer Parent have been prepared to give effect to Pioneer Parent's offer to acquire 46 limited partnerships (collectively, the "Combined Partnerships") that Pioneer USA serves as the sole or managing general partner. Pioneer Parent and Pioneer USA agreed to a merger value for each partnership. The aggregate merger value for the Combined Partnerships is $107.1 million. For a description of the method used to determine the merger value for each partnership and the amount of Pioneer Parent common stock offered, see "Method of Determining Merger Value For Each Partnership and Amount of Pioneer Parent Common Stock Offered." The merger value for each partnership will not change. The only variables are the determination of which partnerships will approve the agreement and plan of merger, if any, and the number of shares of Pioneer Parent that will be issued to the limited partners of those partnerships that approve the agreement and plan of merger. For purposes of presenting the unaudited pro forma combined financial statements, Pioneer Parent has assumed that each partnership will approve the agreement and plan of merger and will merge into Pioneer Parent and be converted into the right to receive Pioneer Parent common stock using an estimated per share market value of $18.00. The actual purchase price will be determined on the closing date based on the value of Pioneer Parent's common stock issued to those partnerships that approve the agreement and plan of merger. Pioneer Parent will value the shares of common stock to be issued using the average closing price of its common stock over a five day period comprised of the two days prior to a defined measurement date, the defined measurement date and the two days following the defined measurement date. See Note (2) to the unaudited pro forma combined financial statements for additional information regarding the purchase price, the valuation of Pioneer Parent common stock and the definition of the measurement date referred to above. The unaudited pro forma combined balance sheet of Pioneer Parent as of June 30, 2001 has been prepared to give effect to the acquisition of the Combined Partnerships as if it had occurred on June 30, 2001. The unaudited pro forma combined statements of operations of Pioneer Parent for the six months ended June 30, 2001 and for the year ended December 31, 2000 have been prepared to give effect to the acquisition of the Combined Partnerships as if it had occurred on January 1, 2000. The unaudited pro forma combined financial statements included herein are not necessarily indicative of the results that might have occurred had the transaction taken place on the dates that are assumed for the pro forma presentations and are not intended to be a projection of future results. Future results may vary significantly from the results reflected in the accompanying unaudited pro forma combined financial statements because of normal production declines, changes in product prices, future acquisitions and divestitures, future development and exploration activities, and other factors. The following unaudited pro forma combined financial statements should be read in conjunction with the Consolidated Financial Statements (and the related notes) of Pioneer Parent included in the Annual Report on Form 10-K for the year ended December 31, 2000, the Quarterly Report on Form 10-Q for the six months ended June 30, 2001 and the historical financial statements of each partnership in which you own an interest contained in the supplement to this document for the partnership. P-1 102 PIONEER NATURAL RESOURCES COMPANY UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 2001 (IN THOUSANDS, EXCEPT SHARE DATA)
PIONEER COMBINED PRO FORMA PRO FORMA PARENT PARTNERSHIPS ADJUSTMENTS PIONEER PARENT ----------- ------------ ----------- -------------- ASSETS Current assets: Cash and cash equivalents................................. $ 18,227 $ 12,819 $ (7,064)(c) $ 23,982 Accounts receivable: Trade, net.............................................. 100,222 5,802 106,024 Affiliates.............................................. 2,460 -- (1,130)(b) 1,330 Inventories............................................... 15,068 -- 15,068 Deferred income taxes..................................... 5,600 -- 5,600 Other current assets: Derivatives............................................. 51,304 -- -- 51,304 Other................................................... 8,338 -- -- 8,338 ----------- --------- --------- ----------- Total current assets................................ 201,219 18,621 211,646 ----------- --------- ----------- Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting: Proved properties....................................... 3,400,375 355,133 (258,448)(a) 3,497,060 Unproved properties..................................... 210,808 -- 210,808 Accumulated depletion, depreciation and amortization...... (1,003,926) (309,584) 309,584(a) (1,003,926) ----------- --------- ----------- 2,607,257 45,549 2,703,942 ----------- --------- ----------- Deferred income taxes....................................... 83,611 -- 83,611 Other property and equipment, net........................... 21,425 -- 21,425 Other assets, net........................................... 148,542 -- 148,542 ----------- --------- ----------- $ 3,062,054 $ 64,170 $ 3,169,166 =========== ========= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade................................................... $ 113,046 $ 49 $ $ 113,095 Affiliates.............................................. 3,200 1,130 (1,130)(b) 3,200 Interest payable.......................................... 39,056 -- 39,056 Other current liabilities: Derivative obligations.................................. 43,020 -- 43,020 Other................................................... 48,362 -- 48,362 ----------- --------- ----------- Total current liabilities........................... 246,684 1,179 246,733 ----------- --------- ----------- Long-term debt.............................................. 1,572,227 -- 1,572,227 Other noncurrent liabilities................................ 179,656 -- 179,656 Deferred income taxes....................................... 24,485 -- 24,485 Partners' capital........................................... -- 62,991 (62,991)(a)(c) -- Stockholders' equity: Common stock.............................................. 1,017 -- 59(a) 1,076 Additional paid-in capital................................ 2,357,778 -- 107,004(a) 2,464,782 Treasury stock............................................ (44,431) -- (44,431) Accumulated deficit....................................... (1,326,497) -- (1,326,497) Accumulated other comprehensive income: Deferred hedge gains and losses......................... 49,375 -- 49,375 Cumulative translation adjustment....................... 1,760 -- 1,760 ----------- --------- ----------- Total stockholders' equity and partners' capital.... 1,039,002 62,991 1,146,065 ----------- --------- ----------- Commitments and contingencies............................... $ 3,062,054 $ 64,170 $ 3,169,166 =========== ========= ===========
The accompanying notes are an integral part of these unaudited pro forma combined financial statements. P-2 103 PIONEER NATURAL RESOURCES COMPANY UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PIONEER COMBINED PRO FORMA PRO FORMA PARENT PARTNERSHIPS ADJUSTMENTS PIONEER PARENT -------- ------------ ----------- -------------- Revenues: Oil and gas............................................ $476,597 $25,254 $(1,666)(d) $500,185 Interest and other..................................... 16,122 195 (12)(d) 16,305 Gain on disposition of assets, net..................... 8,765 178 -- 8,943 -------- ------- -------- 501,484 25,627 525,433 -------- ------- -------- Cost and expenses: Oil and gas production................................. 107,776 10,618 (80)(d) (3,311)(e) 115,003 Depletion, depreciation and amortization............... 109,557 1,739 1,613 (f) 112,909 Exploration and abandonments........................... 69,466 119 -- 69,585 General and administrative............................. 18,453 777 (58)(d) 3,311 (e) 22,483 Interest............................................... 69,876 -- 69,876 Other.................................................. 27,091 -- 27,091 -------- ------- -------- 402,219 13,253 416,947 -------- ------- -------- Income from continuing operations before income taxes.... 99,265 12,374 108,486 Income tax provision..................................... (3,008) -- -- (h) (3,008) -------- ------- -------- Income from continuing operations........................ $ 96,257 $12,374 $105,478 ======== ======= ======== Income from continuing operations per common share: Basic............................................. $ .98 $ 1.01 ======== ======== Diluted........................................... $ .97 $ 1.00 ======== ======== Weighted average shares outstanding: Basic............................................. 98,358 5,948 (i) 104,306 ======== ======== Diluted........................................... 99,709 5,948 (i) 105,657 ======== ========
See accompanying notes to unaudited pro forma combined financial statements. P-3 104 PIONEER NATURAL RESOURCES COMPANY UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PIONEER COMBINED PRO FORMA PRO FORMA PARENT PARTNERSHIPS ADJUSTMENTS PIONEER PARENT -------- ------------ ----------- -------------- Revenues: Oil and gas............................................ $852,738 $52,013 $(3,369)(d) $901,382 Interest and other..................................... 25,775 484 (28)(d) 26,231 Gain on disposition of assets, net..................... 34,184 247 (6)(d) 34,425 -------- ------- -------- 912,697 52,744 962,038 -------- ------- -------- Cost and expenses: Oil and gas production................................. 189,265 19,958 (1,392)(d) (5,655)(e) 202,176 Depletion, depreciation and amortization............... 214,938 3,236 3,768 (f) 221,942 Impairment of oil and gas properties................... -- 663 (663)(g) -- Exploration and abandonments........................... 87,550 72 (3)(d) 87,619 General and administrative............................. 33,262 1,599 (110)(d) 5,655 (e) 40,406 Interest............................................... 161,952 -- 161,952 Other.................................................. 67,231 -- 67,231 -------- ------- -------- 754,198 25,528 781,326 -------- ------- -------- Income from continuing operations before income taxes.... 158,499 27,216 180,712 Income tax benefit....................................... 6,000 -- -- (h) 6,000 -------- ------- -------- Income from continuing operations........................ $164,499 $27,216 $186,712 ======== ======= ======== Income from continuing operations per common share: Basic............................................. $ 1.65 $ 1.77 ======== ======== Diluted........................................... $ 1.65 $ 1.77 ======== ======== Weighted average shares outstanding: Basic............................................. 99,378 5,948 (i) 105,326 ======== ======== Diluted........................................... 99,762 5,948 (i) 105,710 ======== ========
See accompanying notes to unaudited pro forma combined financial statements. P-4 105 PIONEER NATURAL RESOURCES COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS JUNE 30, 2001 AND DECEMBER 31, 2000 NOTE 1. BASIS OF PRESENTATION The unaudited pro forma combined financial information of Pioneer Natural Resources Company ("Pioneer Parent") has been prepared to give effect to Pioneer Parent's offer to acquire 46 limited partnerships (collectively, the "Combined Partnerships") that Pioneer USA serves as the sole or managing general partner. The unaudited pro forma combined balance sheet as of June 30, 2001 has been prepared to give effect to the acquisition of the Combined Partnerships as if it had occurred on June 30, 2001. The unaudited pro forma combined statements of operations for the six months ended June 30, 2001 and for the year ended December 31, 2000 are presented as if the acquisition of the Combined Partnerships occurred on January 1, 2000. Following is a description of the individual columns included in these unaudited pro forma combined financial statements: Pioneer Parent -- Represents the consolidated balance sheet of Pioneer Parent as of June 30, 2001, and the consolidated statements of operations of Pioneer Parent for the six months ended June 30, 2001 and the year ended December 31, 2000. Combined Partnerships -- Represents the combined balance sheets of the 46 limited partnerships as of June 30, 2001 and the combined statements of operations of such limited partnerships for the six months ended June 30, 2001 and the year ended December 31, 2000. NOTE 2. PRO FORMA ADJUSTMENTS Following are descriptions of the pro forma adjustments used in the preparation of the accompanying unaudited pro forma combined financial statements: (a) To record the acquisition of the Combined Partnerships, using the purchase method of accounting, for $107.1 million in Pioneer Parent common stock, representing 5,947,940 shares assuming an $18.00 average stock price. The allocation of the purchase price to the acquired assets and liabilities is preliminary and, therefore, subject to change. The purchase price allocation as of June 30, 2001 reflects the fair value of the Combined Partnerships' assets and liabilities as of that date. A final purchase price allocation will be done at closing based upon the fair value of the Combined Partnerships' assets and liabilities at that time. The date three business days prior to the special meeting of limited partners of each partnership to be held on , 2001 will be the measurement date for determining the final number of shares of Pioneer Parent common stock to be issued (the "Measurement Date"). Pioneer Parent will value the shares to be issued using the average closing price of Pioneer Parent common stock for the five-day period comprised of the two days prior to the Measurement Date, the Measurement Date and the two business days subsequent to the Measurement Date. The final allocation is not anticipated to change materially other than for cash flow generated from the Combined Partnerships' property interests between March 31, 2001 and closing, which will be reflected as a reduction to oil and gas properties and an increase to working capital in the final purchase price allocation. (b) To eliminate affiliate receivables and affiliate payables between Pioneer Parent and the Combined Partnerships. (c) To adjust pro forma cash and partners' capital for the $7.1 million cash distribution disbursed to existing partners other than Pioneer USA during July 2001. (d) To eliminate Pioneer Parent's proportionate share of the Combined Partnerships that is already reflected in Pioneer Parent's consolidated statements of operations for the six months ended June 30, 2001 and for the year ended December 31, 2000. (e) To eliminate the Combined Partnership's share of operating overhead charged by Pioneer Parent that was recorded by the Combined Partnerships as an increase in lease operating expenses and by Pioneer Parent as a reduction to general and administrative expense. (f) To adjust depreciation, depletion and amortization expense for the basis allocated to the oil and gas properties acquired and accounted for using the successful efforts method of accounting. P-5 106 PIONEER NATURAL RESOURCES COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (g) To eliminate the Combined Partnerships impairment of oil and gas properties that would not occur on a pro forma basis with Pioneer Parent due to the basis in oil and gas properties reflecting the value assigned using the purchase method of accounting. (h) Pioneer Parent has unused net operating loss carryovers in the United States that could be used to offset any incremental earnings of the Combined Partnerships. Accordingly, no pro forma adjustment was recorded for additional income tax expense. See Note 3. below. (i) To adjust the weighted average basic and diluted common shares outstanding for the issuance of 5,947,940 shares of Pioneer Parent common stock to acquire the Combined Partnerships. The pro forma numerator for basic and diluted earnings per share calculations equals "income from continuing operations" per the Unaudited Pro Forma Combined Statement of Operations (see pages P-3 and P-4). Following is a reconciliation of the pro forma weighted average basic and diluted shares outstanding (in thousands):
JUNE 30, DECEMBER 31, 2001 2000 --------- ------------ Pioneer Parent weighted average basic common shares outstanding............................................... 98,358 99,378 Shares issued to the nonmanaging general partners*.......... 11 11 Shares issued to the limited partners*...................... 5,937 5,937 ------- ------- Pro forma Pioneer Parent weighted average basic shares outstanding............................................... 104,306 105,326 Effect of dilutive common stock options..................... 1,351 384 ------- ------- Pro forma Pioneer Parent weighted average diluted shares outstanding............................................... 105,657 105,710 ======= =======
--------------- * The actual shares issued to the nonmanaging general partners and limited partners will be based on the final determination of the aggregate purchase price and the final measurement of the value of Pioneer Parent common stock, as described more fully in adjustment (a) above. The following table quantifies a range of possible shares to be issued to the nonmanaging general partners and limited partners and Pioneer Parent's pro forma income from continuing operations per common share -- basic and diluted for the six months ended June 30, 2001 and the year ended December 31, 2000 if, based on a $107.1 million aggregate purchase price, the average closing price of the Pioneer Parent common stock over the five day period comprised of the two business days prior to the Measurement Date, the Measurement Date and the two business days subsequent to the Measurement Date is $16.00 per share, $18.00 per share, or $20.00 per share:
AVERAGE PRICE OF PIONEER PARENT COMMON STOCK ----------------------------------------- $16.00 $18.00 $20.00 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Shares issued to the nonmanaging general partners........... 13 11 10 ======== ======== ======== Shares issued to the limited partners....................... 6,679 5,937 5,343 ======== ======== ======== For the six months ended June 30, 2001: Pro forma Pioneer Parent weighted average basic shares outstanding............................................ 105,050 104,306 103,711 ======== ======== ======== Pro forma Pioneer Parent weighted average diluted shares outstanding............................................ 106,401 105,657 105,062 ======== ======== ======== Pro forma income from continuing operations per common share: Basic................................................ $ 1.00 $ 1.01 $ 1.02 ======== ======== ======== Diluted.............................................. $ 0.99 $ 1.00 $ 1.00 ======== ======== ======== For the year ended December 31, 2000: Pro forma Pioneer Parent weighted average basic shares outstanding............................................ 106,070 105,326 104,731 ======== ======== ======== Pro forma Pioneer Parent weighted average diluted shares outstanding............................................ 106,454 105,710 105,115 ======== ======== ======== Pro forma income from continuing operations per common share: Basic................................................ $ 1.76 $ 1.77 $ 1.78 ======== ======== ======== Diluted.............................................. $ 1.75 $ 1.77 $ 1.78 ======== ======== ========
P-6 107 PIONEER NATURAL RESOURCES COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3. INCOME TAXES Pioneer Parent will account for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." In accordance therewith, Pioneer Parent will prepare separate tax calculations for each tax jurisdiction in which Pioneer Parent will be subject to income taxes. Pioneer Parent has unused net operating loss carryovers and alternative minimum tax net operating loss carryovers that would be utilized to reduce incremental United States income taxes that would otherwise be incurred as a result of pro forma pre-tax earnings of the Combined Partnerships. Accordingly, Pioneer Parent has not recognized incremental income tax expense in the accompanying unaudited pro forma combined statements of operations for the six months ended June 30, 2001 and the year ended December 31, 2000. NOTE 4. OIL AND GAS RESERVE DATA The following unaudited pro forma supplemental information regarding the oil and gas activities of Pioneer Parent is presented pursuant to the disclosure requirements promulgated by the Securities and Exchange Commission and Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing Activities." The pro forma combined reserve information is presented as if the acquisition of the Combined Partnerships had occurred on January 1, 2000. Information for oil and NGL's are presented in barrels (Bbls) and for gas in thousands of cubic feet (Mcf). The pro forma combined net proved reserves are 2.2 MMBOE more than the summation of historical net proved reserves of Pioneer Parent and the Combined Partnerships. This difference can be attributed to the net impact of the partnerships' historical net proved reserves being burdened by administrative overhead and the Pioneer Parent reserves already including its pro rata share of the partnerships' reserves. Administrative overhead is charged by the operator (Pioneer Parent for the majority of the properties) in accordance with the joint operating agreements of each property and in accordance with the guidelines prescribed by the Council of Petroleum Accounting Society ("COPAS"). Because these charges will not be charged to Pioneer Parent after the transaction, on a pro forma combined basis Pioneer Parent has eliminated the administrative overhead charges consistent with industry standards. Consequently, the economic lives of the partnerships' properties are extended and additional reserves on a pro forma combined basis have been added. Offsetting the adjustment above is the elimination of Pioneer Parent's general partner and limited partner ownership because such ownership is already included in Pioneer Parent's reserves. Pioneer Parent emphasizes that reserve estimates are inherently imprecise and subject to revision and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, the estimates are expected to change as future information becomes available and such changes could be significant. For additional information regarding the oil and gas activities of Pioneer Parent and the Combined Partnerships, from which the following unaudited pro forma supplemental information was derived, please see: (a) Pioneer Parent's Annual Report on Form 10-K for the year ended December 31, 2000 for information regarding Pioneer Parent's stand-alone oil and gas activities, (b) Table 11 of Appendix A and (c) the review by Williamson Petroleum Consultants, Inc. of the Summary Reserve Report for the Combined Partnerships included in Appendix C for the volumes and values attributable to the Combined Partnerships. P-7 108 PIONEER NATURAL RESOURCES COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) QUANTITIES OF OIL AND GAS RESERVES Set forth below is a pro forma summary of the changes in the net quantities of oil, NGL and natural gas reserves for the year ended December 31, 2000.
OIL & NGLS GAS (MBBLS) (MMCF) MBOE ------- --------- ------- TOTAL PROVED RESERVES: UNITED STATES Balance, January 1........................................ 290,723 1,365,775 518,352 Revisions of previous estimates........................... 18,704 54,518 27,790 Purchases of minerals-in-place............................ 1,237 28,071 5,916 New discoveries and extensions............................ 4,819 66,486 15,900 Production................................................ (18,571) (86,206) (32,939) Sales of minerals-in-place................................ (743) (35,054) (6,586) ------- --------- ------- BALANCE, DECEMBER 31........................................ 296,169 1,393,590 528,433 ARGENTINA Balance, January 1........................................ 29,797 415,620 99,067 Revisions of previous estimates........................... 1,411 (15,558) (1,182) Purchases of minerals-in-place............................ -- -- -- New discoveries and extensions............................ 8,066 43,914 15,385 Production................................................ (3,431) (35,694) (9,380) Sales of minerals-in-place................................ -- -- -- ------- --------- ------- BALANCE, DECEMBER 31........................................ 35,843 408,282 103,890 CANADA Balance, January 1........................................ 3,970 145,251 28,179 Revisions of previous estimates........................... 429 (10,013) (1,240) Purchases of minerals-in-place............................ 140 7,768 1,435 New discoveries and extensions............................ 138 6,132 1,160 Production................................................ (611) (16,219) (3,315) Sales of minerals-in-place................................ -- -- -- ------- --------- ------- BALANCE, DECEMBER 31........................................ 4,066 132,919 26,219 SOUTH AFRICA BALANCE, JANUARY 1.......................................... -- -- -- New discoveries and extensions.............................. 5,552 -- 5,552 ------- --------- ------- BALANCE, DECEMBER 31........................................ 5,552 -- 5,552 TOTAL BALANCE, JANUARY 1.......................................... 324,490 1,926,646 645,598 Revisions of previous estimates............................. 20,544 28,947 25,368 Purchases of minerals-in-place.............................. 1,377 35,839 7,351 New discoveries and extensions.............................. 18,575 116,532 37,997 Production.................................................. (22,613) (138,119) (45,634) Sales of minerals-in-place.................................. (743) (35,054) (6,586) ------- --------- ------- BALANCE, DECEMBER 31........................................ 341,630 1,934,791 664,094 ======= ========= ======= PROVED DEVELOPED RESERVES: United States............................................. 241,253 1,169,664 436,198 Argentina................................................. 22,931 358,124 82,618 Canada.................................................... 2,598 61,210 12,800 ------- --------- ------- JANUARY 1......................................... 266,782 1,588,998 531,616 ======= ========= ======= United States............................................. 236,249 1,120,610 423,018 Argentina................................................. 22,679 345,281 80,226 Canada.................................................... 2,930 80,953 16,422 ------- --------- ------- DECEMBER 31....................................... 261,858 1,546,844 519,666 ======= ========= =======
P-8 109 PIONEER NATURAL RESOURCES COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The pro forma standardized measure of discounted future net cash flow is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves discounted using a rate of 10 percent per year to reflect the estimated timing of the future cash flows. Future income taxes are calculated by comparing undiscounted future cash flows to the tax basis of oil and gas properties plus available carryforwards and credits and applying the current tax rate to the difference.
DECEMBER 31, 2000 -------------- (IN THOUSANDS) UNITED STATES Oil and gas producing activities: Future cash inflows....................................... $19,616,735 Future production costs................................... (5,291,164) Future development costs.................................. (479,742) Future income tax expenses................................ (3,945,755) ----------- 9,900,074 10% annual discount factor........................ (4,991,410) ----------- Standardized measure of discounted future net cash flows.............................................. $ 4,908,664 =========== ARGENTINA Oil and gas producing activities: Future cash inflows....................................... $ 1,183,652 Future production costs................................... (215,853) Future development costs.................................. (114,606) Future income tax expenses................................ (81,705) ----------- 771,488 10% annual discount factor........................ (264,126) ----------- Standardized measure of discounted future net cash flows.............................................. $ 507,362 =========== CANADA Oil and gas producing activities: Future cash inflows....................................... $ 1,029,007 Future production costs................................... (104,189) Future development costs.................................. (35,443) Future income tax expenses................................ (306,399) ----------- 582,976 10% annual discount factor........................ (168,441) ----------- Standardized measure of discounted future net cash flows.............................................. $ 414,535 =========== SOUTH AFRICA Oil and gas producing activities: Future cash inflows....................................... $ 126,134 Future production costs................................... (65,232) Future development costs.................................. (47,970) Future income tax expenses................................ -- ----------- 12,932 10% annual discount factor........................ (5,782) ----------- Standardized measure of discounted future net cash flows.............................................. $ 7,150 ===========
P-9 110 PIONEER NATURAL RESOURCES COMPANY NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000 -------------- (IN THOUSANDS) TOTAL Oil and gas producing activities: Future cash inflows....................................... $21,956,101 Future production costs................................... (5,677,011) Future development costs.................................. (677,761) Future income tax expenses................................ (4,333,859) ----------- 11,267,470 10% annual discount factor........................ (5,429,759) ----------- Standardized measure of discounted future net cash flows.............................................. $ 5,837,711 ===========
CHANGES RELATING TO THE PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS The principal sources of the change in the pro forma combined standardized measure of discounted future net cash flows for the year ended December 31, 2000 are as follows (in thousands): Oil and gas sales, net of production costs.................. $ (699,206) Net changes in prices and production costs.................. 3,920,249 Extension and discoveries................................... 525,361 Development costs incurred during the period................ 101,350 Sales of minerals-in-place.................................. (72,624) Purchases of mineral-in-place............................... 187,097 Revisions of estimated future development costs............. (200,734) Revisions of previous quantity estimates.................... 329,124 Accretion of discount....................................... 313,291 Changes in production rates, timing and other............... (270,400) ----------- Change in present value of future net revenues.............. 4,133,508 Net change in present value of future income taxes.......... (1,428,710) ----------- 2,704,798 Balance, beginning of year........................ 3,132,913 ----------- Balance, end of year.............................. $ 5,837,711 ===========
P-10 111 APPENDIX A TO PROXY STATEMENT/PROSPECTUS GENERAL INFORMATION RELATING TO EACH PARTNERSHIP Table 1 Jurisdiction of Organization, Initial Subscription Price for Each Unit, Initial Investment by Limited Partners and Number of Limited Partners as of July 31, 2001 Table 2 Merger Value Attributable to Pioneer USA, Nonmanaging General Partners and Limited Partners Table 3 Merger Value Attributable to Partnership Interests of Limited Partners Per $1,000 Investment Table 4 Ownership Percentage and Merger Value Attributable to Nonmanaging General Partners Other Than Pioneer USA Table 5 Ownership Percentage and Merger Value Attributable to Pioneer USA in Its Capacities as General Partner, Nonmanaging General Partner and Limited Partner Table 6 Voting Percentage and Initial Investment Owned by Pioneer USA in Its Capacity as a Limited Partner as of July 31, 2001 Table 7 Historical Quarterly Partnership Distributions to the Limited Partners Per $1,000 Investment from Inception through July 31, 2001 Table 8 Annual Repurchase Prices and Aggregate Annual Repurchase Payments Table 9 Participation in Costs and Revenues of Each Partnership Table 10 Average Oil, Natural Gas Liquids and Gas Sales Prices and Production Costs for the Six Months Ended June 30, 2001 and 2000 and the Years Ended December 31, 2000, 1999 and 1998 Table 11 Proved Reserves Attributable to Pioneer USA, Nonmanaging General Partners and Limited Partners as of December 31, 2000 Table 12 Partnership Estimated Reserves Attributable to Pioneer USA, Nonmanaging General Partners and Limited Partners as of March 31, 2001 Table 13 Oil, Natural Gas Liquids and Gas Production for the Six Months Ended June 30, 2001 and 2000 and the Years Ended December 31, 2000, 1999 and 1998 Table 14 Productive Wells and Developed Acreage as of June 30, 2001 Table 15 Recent Trades of Partnership Interests Per $1,000 Investments for the Seven Months Ended July 31, 2001 and the Years Ended December 31, 2000 and 1999 Table 16 Reserve Value Attributable to Pioneer USA, Nonmanaging General Partners and Limited Partners as of March 31, 2001 A-1 112 TABLE 1 JURISDICTION OF ORGANIZATION, INITIAL SUBSCRIPTION PRICE FOR EACH UNIT, INITIAL INVESTMENT BY LIMITED PARTNERS AND NUMBER OF LIMITED PARTNERS AS OF JULY 31, 2001
INITIAL INITIAL INVESTMENT SUBSCRIPTION BY LIMITED NUMBER OF JURISDICTION OF PRICE FOR PARTNERS LIMITED ORGANIZATION EACH UNIT (IN THOUSANDS) PARTNERS --------------- ------------ -------------- --------- Parker & Parsley 81-I, Ltd.................................. Texas $ 5,000 $ 7,410 136 Parker & Parsley 81-II, Ltd................................. Texas 5,000 6,440 159 Parker & Parsley 82-I, Ltd.................................. Texas 2,000 11,805 606 Parker & Parsley 82-II, Ltd................................. Texas 2,000 12,252 769 Parker & Parsley 82-III, Ltd................................ Texas 2,000 6,882 419 Parker & Parsley 83-A, Ltd.................................. Texas 1,000 19,505 1,262 Parker & Parsley 83-B, Ltd.................................. Texas 1,000 23,370 1,358 Parker & Parsley 84-A, Ltd.................................. Texas 1,000 19,435 1,227 Parker & Parsley 85-A, Ltd.................................. Texas 1,000 9,613 800 Parker & Parsley 85-B, Ltd.................................. Texas 1,000 7,988 718 Parker & Parsley Private Investment 85-A, Ltd............... Texas 40,000 5,000 107 Parker & Parsley Selected 85 Private Investment, Ltd........ Texas 40,000 4,690 81 Parker & Parsley 86-A, Ltd.................................. Texas 1,000 10,131 956 Parker & Parsley 86-B, Ltd.................................. Texas 1,000 17,208 1,382 Parker & Parsley 86-C, Ltd.................................. Texas 1,000 19,317 1,326 Parker & Parsley Private Investment 86, Ltd................. Texas 40,000 4,920 103 Parker & Parsley 87-A Conv., Ltd............................ Texas 1,000 3,856 213 Parker & Parsley 87-A, Ltd.................................. Texas 1,000 28,811 2,114 Parker & Parsley 87-B Conv., Ltd............................ Texas 1,000 4,919 259 Parker & Parsley 87-B, Ltd.................................. Texas 1,000 20,089 1,464 Parker & Parsley Producing Properties 87-A, Ltd............. Texas 500 12,213 1,093 Parker & Parsley Producing Properties 87-B, Ltd............. Texas 500 6,096 550 Parker & Parsley Private Investment 87, Ltd................. Texas 40,000 10,480 197 Parker & Parsley 88-A Conv., L.P............................ Delaware 1,000 3,793 236 Parker & Parsley 88-A, L.P.................................. Delaware 1,000 12,935 985 Parker & Parsley 88-B Conv., L.P............................ Delaware 1,000 3,636 240 Parker & Parsley 88-B, L.P.................................. Delaware 1,000 8,954 691 Parker & Parsley 88-C Conv., L.P............................ Delaware 1,000 3,411 217 Parker & Parsley 88-C, L.P.................................. Delaware 1,000 2,431 191 Parker & Parsley Producing Properties 88-A, L.P............. Delaware 500 5,611 504 Parker & Parsley Private Investment 88, L.P................. Delaware 40,000 9,960 153 Parker & Parsley 89-A Conv., L.P............................ Delaware 1,000 2,797 191 Parker & Parsley 89-A, L.P.................................. Delaware 1,000 8,317 606 Parker & Parsley 89-B Conv., L.P............................ Delaware 1,000 6,307 341 Parker & Parsley 89-B, L.P.................................. Delaware 1,000 6,949 460 Parker & Parsley Private Investment 89, L.P................. Delaware 40,000 7,060 126 Parker & Parsley 90-A Conv., L.P............................ Delaware 1,000 2,359 139 Parker & Parsley 90-A, L.P.................................. Delaware 1,000 6,811 524 Parker & Parsley 90-B Conv., L.P............................ Delaware 1,000 11,897 664 Parker & Parsley 90-B, L.P.................................. Delaware 1,000 32,264 2,186 Parker & Parsley 90-C Conv., L.P............................ Delaware 1,000 7,531 506 Parker & Parsley 90-C, L.P.................................. Delaware 1,000 12,107 875 Parker & Parsley Private Investment 90, L.P................. Delaware 40,000 10,970 197 Parker & Parsley 90 Spraberry Private Dev., L.P............. Delaware 40,000 5,200 102 Parker & Parsley 91-A, L.P.................................. Delaware 1,000 11,620 726 Parker & Parsley 91-B, L.P.................................. Delaware 1,000 11,249 679 ------ Total.............................................. 28,838 ======
A-2 113 TABLE 2 MERGER VALUE ATTRIBUTABLE TO PIONEER USA, NONMANAGING GENERAL PARTNERS AND LIMITED PARTNERS(a)
NONMANAGING GENERAL LIMITED PIONEER USA(B) PARTNERS(C) PARTNERS(D) TOTAL -------------- ----------- ----------- ---------- Parker & Parsley 81-I, Ltd. ................................ $ 235,285 $16,888 653,690 $ 905,863 Parker & Parsley 81-II, Ltd. ............................... 160,791 6,535 526,536 693,862 Parker & Parsley 82-I, Ltd. ................................ 410,553 13,871 868,381 1,292,805 Parker & Parsley 82-II, Ltd. ............................... 433,854 13,187 1,210,097 1,657,138 Parker & Parsley 82-III, Ltd. .............................. 305,910 9,927 787,628 1,103,465 Parker & Parsley 83-A, Ltd. ................................ 962,385 37,202 2,660,522 3,660,109 Parker & Parsley 83-B, Ltd. ................................ 1,310,513 49,882 3,564,642 4,925,037 Parker & Parsley 84-A, Ltd. ................................ 1,313,732 55,855 3,741,823 5,111,410 Parker & Parsley 85-A, Ltd. ................................ 39,179 -- 1,299,886 1,339,065 Parker & Parsley 85-B, Ltd. ................................ 20,208 -- 1,155,472 1,175,680 Parker & Parsley Private Investment 85-A, Ltd. ............. 47,872 -- 1,370,151 1,418,023 Parker & Parsley Selected 85 Private Investment, Ltd. ...... 28,332 -- 1,025,397 1,053,729 Parker & Parsley 86-A, Ltd. ................................ 23,353 -- 1,716,778 1,740,131 Parker & Parsley 86-B, Ltd. ................................ 69,533 -- 3,934,914 4,004,447 Parker & Parsley 86-C, Ltd. ................................ 42,190 -- 3,184,609 3,226,799 Parker & Parsley Private Investment 86, Ltd. ............... 13,416 -- 1,328,134 1,341,550 Parker & Parsley 87-A Conv., Ltd. .......................... 14,805 -- 764,998 779,803 Parker & Parsley 87-A, Ltd. ................................ 92,985 -- 5,713,729 5,806,714 Parker & Parsley 87-B Conv., Ltd. .......................... 12,399 -- 1,019,742 1,032,141 Parker & Parsley 87-B, Ltd. ................................ 51,532 -- 4,166,286 4,217,818 Parker & Parsley Producing Properties 87-A, Ltd. ........... 35,395 -- 2,589,227 2,624,622 Parker & Parsley Producing Properties 87-B, Ltd. ........... 61,106 -- 2,296,689 2,357,795 Parker & Parsley Private Investment 87, Ltd. ............... 26,261 -- 2,599,862 2,626,123 Parker & Parsley 88-A Conv., L.P. .......................... 21,776 -- 922,941 944,717 Parker & Parsley 88-A, L.P. ................................ 75,042 -- 3,153,865 3,228,907 Parker & Parsley 88-B Conv., L.P. .......................... 19,347 -- 1,233,237 1,252,584 Parker & Parsley 88-B, L.P. ................................ 62,940 -- 3,023,397 3,086,337 Parker & Parsley 88-C Conv., L.P. .......................... 13,021 -- 996,208 1,009,229 Parker & Parsley 88-C, L.P. ................................ 8,602 -- 706,056 714,658 Parker & Parsley Producing Properties 88-A, L.P. ........... 35,259 -- 2,053,405 2,088,664 Parker & Parsley Private Investment 88, L.P. ............... 35,389 -- 3,503,510 3,538,899 Parker & Parsley 89-A Conv., L.P. .......................... 9,382 -- 928,839 938,221 Parker & Parsley 89-A, L.P. ................................ 62,877 -- 2,731,848 2,794,725 Parker & Parsley 89-B Conv., L.P. .......................... 23,451 -- 1,761,305 1,784,756 Parker & Parsley 89-B, L.P. ................................ 39,784 -- 1,924,144 1,963,928 Parker & Parsley Private Investment 89, L.P. ............... 31,687 -- 1,998,362 2,030,049 Parker & Parsley 90-A Conv., L.P. .......................... 9,413 -- 583,543 592,956 Parker & Parsley 90-A, L.P. ................................ 53,832 -- 1,662,363 1,716,195 Parker & Parsley 90-B Conv., L.P. .......................... 54,557 -- 3,220,716 3,275,273 Parker & Parsley 90-B, L.P. ................................ 111,674 -- 8,788,939 8,900,613 Parker & Parsley 90-C Conv., L.P. .......................... 26,279 -- 1,858,388 1,884,667 Parker & Parsley 90-C, L.P. ................................ 36.882 -- 2,984,323 3,021,205 Parker & Parsley Private Investment 90, L.P. ............... 52,606 -- 3,360,078 3,412,684 Parker & Parsley 90 Spraberry Private Dev., L.P. ........... 16,330 -- 1,616,696 1,633,026 Parker & Parsley 91-A, L.P. ................................ 65,445 -- 4,665,291 4,730,736 Parker & Parsley 91-B, L.P. ................................ 55,026 -- 5,002,516 5,057,542
--------------- (a) The merger value for each partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (b) Represents Pioneer USA's partnership interests in each partnership as: (1) the sole or managing general partner of the partnership; (2) a limited partner of the partnership; and (3) the sole general partner of each nonmanaging general partner. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in any participating partnership. However, as a result of the merger of each participating partnership, Pioneer USA will own 100% of the properties of the partnership including properties attributable to its partnership interests in the partnership. (c) Represents four unaffiliated individuals' partnership interests as limited partners of each nonmanaging general partner. Excludes Pioneer USA's partnership interests as general partner of each nonmanaging general partner. (d) Represents the partnership interests of unaffiliated limited partners of each partnership. Excludes Pioneer USA's partnership interests as a limited partner of any partnership. A-3 114 TABLE 3 MERGER VALUE ATTRIBUTABLE TO PARTNERSHIP INTERESTS OF LIMITED PARTNERS PER $1,000 INVESTMENT
LIMITED PARTNERS PER $1,000 INVESTMENT ------------------------------------------------------ WORKING LESS RESERVE CAPITAL EXPENSES JULY 2001 MERGER VALUE VALUE AND FEES DISTRIBUTIONS VALUE ------- ------- -------- ------------- ------- Parker & Parsley 81-I, Ltd. ................................ $ 93.46 $ 9.32 $(1.67) $ (7.43) $ 93.68 Parker & Parsley 81-II, Ltd. ............................... 79.80 10.16 (1.43) (6.33) 82.20 Parker & Parsley 82-I, Ltd. ................................ 82.50 9.69 (1.48) (7.39) 83.32 Parker & Parsley 82-II, Ltd. ............................... 100.28 9.83 (1.80) (5.04) 103.27 Parker & Parsley 82-III, Ltd. .............................. 121.32 10.28 (2.17) (7.72) 121.71 Parker & Parsley 83-A, Ltd. ................................ 138.02 15.18 (2.47) (8.56) 142.17 Parker & Parsley 83-B, Ltd. ................................ 153.78 17.04 (2.75) (8.20) 159.87 Parker & Parsley 84-A, Ltd. ................................ 194.07 20.97 (3.47) (12.51) 199.06 Parker & Parsley 85-A, Ltd. ................................ 133.47 16.15 (2.39) (9.33) 137.90 Parker & Parsley 85-B, Ltd. ................................ 140.20 17.78 (2.51) (9.76) 145.71 Parker & Parsley Private Investment 85-A, Ltd. ............. 277.58 24.78 (4.97) (16.62) 280.77 Parker & Parsley Selected 85 Private Investment, Ltd. ...... 223.13 20.14 (3.99) (16.85) 222.43 Parker & Parsley 86-A, Ltd. ................................ 172.10 10.64 (3.08) (9.62) 170.04 Parker & Parsley 86-B, Ltd. ................................ 224.67 22.98 (4.02) (13.25) 230.38 Parker & Parsley 86-C, Ltd. ................................ 161.34 21.31 (2.89) (14.38) 165.38 Parker & Parsley Private Investment 86, Ltd. ............... 267.16 24.39 (4.78) (16.82) 269.95 Parker & Parsley 87-A Conv., Ltd. .......................... 194.73 24.00 (3.49) (15.03) 200.21 Parker & Parsley 87-A, Ltd. ................................ 193.80 24.23 (3.47) (15.03) 199.53 Parker & Parsley 87-B Conv., Ltd. .......................... 200.25 23.92 (3.59) (12.85) 207.73 Parker & Parsley 87-B, Ltd. ................................ 200.25 24.05 (3.59) (12.85) 207.86 Parker & Parsley Producing Properties 87-A, Ltd. ........... 204.54 32.10 (3.66) (20.23) 212.75 Parker & Parsley Producing Properties 87-B, Ltd. ........... 382.32 26.85 (6.85) (19.38) 382.94 Parker & Parsley Private Investment 87, Ltd. ............... 249.19 23.09 (4.46) (19.75) 248.07 Parker & Parsley 88-A Conv., L.P............................ 239.58 31.69 (4.29) (20.40) 246.58 Parker & Parsley 88-A, L.P.................................. 239.58 32.24 (4.29) (20.40) 247.13 Parker & Parsley 88-B Conv., L.P............................ 334.79 30.88 (5.99) (18.63) 341.05 Parker & Parsley 88-B, L.P.................................. 334.79 31.07 (5.99) (18.63) 341.24 Parker & Parsley 88-C Conv., L.P............................ 286.38 28.93 (5.13) (17.26) 292.92 Parker & Parsley 88-C, L.P.................................. 286.38 27.05 (5.13) (17.26) 291.04 Parker & Parsley Producing Properties 88-A, L.P............. 336.82 58.49 (6.03) (20.76) 368.52 Parker & Parsley Private Investment 88, L.P................. 345.73 32.64 (6.19) (20.42) 351.76 Parker & Parsley 89-A Conv., L.P............................ 325.18 33.65 (5.82) (20.93) 332.08 Parker & Parsley 89-A, L.P.................................. 325.19 34.23 (5.82) (20.93) 332.67 Parker & Parsley 89-B Conv., L.P............................ 273.19 30.92 (4.89) (19.07) 280.15 Parker & Parsley 89-B, L.P.................................. 272.72 31.03 (4.88) (19.07) 279.80 Parker & Parsley Private Investment 89, L.P................. 280.87 27.07 (5.03) (18.24) 284.67 Parker & Parsley 90-A Conv., L.P............................ 241.78 30.00 (4.33) (18.61) 248.84 Parker & Parsley 90-A, L.P.................................. 241.78 30.61 (4.33) (18.61) 249.45 Parker & Parsley 90-B Conv., L.P............................ 271.69 26.06 (4.86) (20.34) 272.55 Parker & Parsley 90-B, L.P.................................. 272.05 26.27 (4.87) (20.34) 273.11 Parker & Parsley 90-C Conv., L.P............................ 243.95 23.39 (4.37) (15.22) 247.75 Parker & Parsley 90-C, L.P.................................. 243.96 22.68 (4.37) (15.22) 247.05 Parker & Parsley Private Investment 90, L.P................. 305.52 28.37 (5.47) (20.44) 307.98 Parker & Parsley 90 Spraberry Private Dev., L.P............. 311.48 27.40 (5.58) (22.40) 310.90 Parker & Parsley 91-A, L.P.................................. 403.07 33.61 (7.22) (26.41) 403.05 Parker & Parsley 91-B, L.P.................................. 441.41 36.88 (7.90) (25.28) 445.11
A-4 115 TABLE 4 OWNERSHIP PERCENTAGE AND MERGER VALUE ATTRIBUTABLE TO NONMANAGING GENERAL PARTNERS OTHER THAN PIONEER USA
NONMANAGING NONMANAGING GENERAL GENERAL PARTNERS' PARTNERS(A) MERGER VALUE AS A ------------------------ PERCENTAGE OF OWNERSHIP MERGER MERGER VALUE PERCENTAGE(B) VALUE(C) FOR THE PARTNERSHIP(D) ------------- -------- ------------------------ Parker & Parsley 81-I, Ltd. ................................ 2.00% $16,888 1.86% Parker & Parsley 81-II, Ltd. ............................... 1.00% 6,535 0.94% Parker & Parsley 82-I, Ltd. ................................ 1.13% 13,871 1.07% Parker & Parsley 82-II, Ltd. ............................... 0.84% 13,187 0.80% Parker & Parsley 82-III, Ltd. .............................. 0.94% 9,927 0.90% Parker & Parsley 83-A, Ltd. ................................ 1.05% 37,202 1.02% Parker & Parsley 83-B, Ltd. ................................ 1.05% 49,882 1.01% Parker & Parsley 84-A, Ltd. ................................ 1.13% 55,855 1.09%
--------------- (a) Represents four unaffiliated individuals' partnership interests as limited partners of each nonmanaging general partner. Excludes Pioneer USA's partnership interests as general partner of each nonmanaging general partner. (b) Percentage owned is based upon ownership within the partnership as set forth in the revenue sharing provisions of the partnership agreement for the partnership. (c) See "Method of Determining Merger Value for Each Partnership and Amount of Pioneer Parent Common Stock Offered." (d) Represents the dollar amount in the nonmanaging general partners' merger value column divided by the merger value for the partnership as set forth in Table 2. A-5 116 TABLE 5 OWNERSHIP PERCENTAGE AND MERGER VALUE ATTRIBUTABLE TO PIONEER USA IN ITS CAPACITIES AS GENERAL PARTNER, NONMANAGING GENERAL PARTNER AND LIMITED PARTNER
PIONEER USA'S PIONEER USA(A) MERGER VALUE AS A -------------------------- PERCENTAGE OF OWNERSHIP MERGER MERGER VALUE PERCENTAGE(B) VALUE(C) FOR THE PARTNERSHIP(D) ------------- ---------- ---------------------- Parker & Parsley 81-I, Ltd. ................................ 27.38% $ 235,285 25.97% Parker & Parsley 81-II, Ltd. ............................... 24.41% 160,791 23.17% Parker & Parsley 82-I, Ltd. ................................ 32.66% 410,553 31.76% Parker & Parsley 82-II, Ltd. ............................... 27.43% 433,854 26.18% Parker & Parsley 82-III, Ltd. .............................. 28.54% 305,910 27.72% Parker & Parsley 83-A, Ltd. ................................ 26.99% 962,385 26.29% Parker & Parsley 83-B, Ltd. ................................ 27.39% 1,310,513 26.61% Parker & Parsley 84-A, Ltd. ................................ 26.34% 1,313,732 25.70% Parker & Parsley 85-A, Ltd. ................................ 2.93% 39,179 2.93% Parker & Parsley 85-B, Ltd. ................................ 1.72% 20,208 1.72% Parker & Parsley Private Investment 85-A, Ltd. ............. 3.38% 47,872 3.38% Parker & Parsley Selected 85 Private Investment, Ltd. ...... 2.69% 28,332 2.69% Parker & Parsley 86-A, Ltd. ................................ 1.34% 23,353 1.34% Parker & Parsley 86-B, Ltd. ................................ 1.74% 69,533 1.74% Parker & Parsley 86-C, Ltd. ................................ 1.31% 42,190 1.31% Parker & Parsley Private Investment 86, Ltd. ............... 1.00% 13,416 1.00% Parker & Parsley 87-A Conv., Ltd. .......................... 1.90% 14,805 1.90% Parker & Parsley 87-A, Ltd. ................................ 1.60% 92,985 1.60% Parker & Parsley 87-B Conv., Ltd. .......................... 1.20% 12,399 1.20% Parker & Parsley 87-B, Ltd. ................................ 1.22% 51,532 1.22% Parker & Parsley Producing Properties 87-A, Ltd. ........... 1.35% 35,395 1.35% Parker & Parsley Producing Properties 87-B, Ltd. ........... 2.59% 61,106 2.59% Parker & Parsley Private Investment 87, Ltd. ............... 1.00% 26,261 1.00% Parker & Parsley 88-A Conv., L.P............................ 2.31% 21,776 2.31% Parker & Parsley 88-A, L.P.................................. 2.32% 75,042 2.32% Parker & Parsley 88-B Conv., L.P............................ 1.54% 19,347 1.54% Parker & Parsley 88-B, L.P.................................. 2.04% 62,940 2.04% Parker & Parsley 88-C Conv., L.P............................ 1.29% 13,021 1.29% Parker & Parsley 88-C, L.P.................................. 1.20% 8,602 1.20% Parker & Parsley Producing Properties 88-A, L.P............. 1.69% 35,259 1.69% Parker & Parsley Private Investment 88, L.P................. 1.00% 35,389 1.00% Parker & Parsley 89-A Conv., L.P............................ 1.00% 9,382 1.00% Parker & Parsley 89-A, L.P.................................. 2.25% 62,877 2.25% Parker & Parsley 89-B Conv., L.P............................ 1.31% 23,451 1.31% Parker & Parsley 89-B, L.P.................................. 2.03% 39,784 2.03% Parker & Parsley Private Investment 89, L.P................. 1.56% 31,687 1.56% Parker & Parsley 90-A Conv., L.P............................ 1.59% 9,413 1.59% Parker & Parsley 90-A, L.P.................................. 3.14% 53,832 3.14% Parker & Parsley 90-B Conv., L.P............................ 1.67% 54,557 1.67% Parker & Parsley 90-B, L.P.................................. 1.25% 111,674 1.25% Parker & Parsley 90-C Conv., L.P............................ 1.39% 26,279 1.39% Parker & Parsley 90-C, L.P.................................. 1.22% 36,882 1.22% Parker & Parsley Private Investment 90, L.P................. 1.54% 52,606 1.54% Parker & Parsley 90 Spraberry Private Dev., L.P............. 1.00% 16,330 1.00% Parker & Parsley 91-A, L.P.................................. 1.38% 65,445 1.38% Parker & Parsley 91-B, L.P.................................. 1.09% 55,026 1.09%
--------------- (a) Represents Pioneer USA's partnership interests in each partnership as: (1) the sole or managing general partner of the partnership; (2) a limited partner of the partnership; and (3) the sole general partner of each nonmanaging general partner. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in any participating partnership. However, as a result of the merger of each participating partnership, Pioneer USA will own 100% of the properties of the partnership including properties attributable to its partnership interests in the partnership. (b) Percentage owned is based upon ownership within the partnership as set forth in the revenue sharing provisions of the partnership agreement for the partnership. (c) See "Method of Determining Merger Value for Each Partnership and Amount of Pioneer Parent Common Stock Offered." (d) Represents the dollar amount in Pioneer USA's merger value column divided by the merger value for the partnership as set forth in Table 2. A-6 117 TABLE 6 VOTING PERCENTAGE AND INITIAL INVESTMENT OWNED BY PIONEER USA IN ITS CAPACITY AS A LIMITED PARTNER AS OF JULY 31, 2001
INITIAL INVESTMENT PIONEER USA OWNED BY VOTING PIONEER USA(D) PERCENTAGE(A)(B) (IN THOUSANDS) ---------------- -------------- Parker & Parsley 81-I, Ltd.................................. 5.84% $ 433 Parker & Parsley 81-II, Ltd................................. 0.55% 35 Parker & Parsley 82-I, Ltd.................................. 11.71% 1,382 Parker & Parsley 82-II, Ltd................................. 4.37% 535 Parker & Parsley 82-III, Ltd................................ 5.97% 411 Parker & Parsley 83-A, Ltd.................................. 4.06% 791 Parker & Parsley 83-B, Ltd.................................. 4.59% 1,072 Parker & Parsley 84-A, Ltd.................................. 3.28% 638 Parker & Parsley 85-A, Ltd.(c).............................. 0.00% 187 Parker & Parsley 85-B, Ltd.(c).............................. 0.00% 58 Parker & Parsley Private Investment 85-A, Ltd.(c)........... 0.00% 120 Parker & Parsley Selected 85 Private Investment, Ltd.(c).... 0.00% 80 Parker & Parsley 86-A, Ltd.................................. 0.35% 35 Parker & Parsley 86-B, Ltd.................................. 0.74% 128 Parker & Parsley 86-C, Ltd.................................. 0.31% 60 Parker & Parsley Private Investment 86, Ltd.(c)............. 0.00% -- Parker & Parsley 87-A Conv., Ltd............................ 0.91% 35 Parker & Parsley 87-A, Ltd.................................. 0.61% 175 Parker & Parsley 87-B Conv., Ltd............................ 0.20% 10 Parker & Parsley 87-B, Ltd.................................. 0.22% 45 Parker & Parsley Producing Properties 87-A, Ltd............. 0.35% 43 Parker & Parsley Producing Properties 87-B, Ltd............. 1.61% 98 Parker & Parsley Private Investment 87, Ltd................. 0.00% -- Parker & Parsley 88-A Conv., L.P............................ 1.32% 50 Parker & Parsley 88-A, L.P.................................. 1.34% 173 Parker & Parsley 88-B Conv., L.P............................ 0.55% 20 Parker & Parsley 88-B, L.P.................................. 1.05% 94 Parker & Parsley 88-C Conv., L.P............................ 0.29% 10 Parker & Parsley 88-C, L.P.................................. 0.21% 5 Parker & Parsley Producing Properties 88-A, L.P............. 0.70% 39 Parker & Parsley Private Investment 88, L.P................. 0.00% -- Parker & Parsley 89-A Conv., L.P............................ 0.00% -- Parker & Parsley 89-A, L.P.................................. 1.26% 105 Parker & Parsley 89-B Conv., L.P............................ 0.32% 20 Parker & Parsley 89-B, L.P.................................. 1.04% 72 Parker & Parsley Private Investment 89, L.P................. 0.57% 40 Parker & Parsley 90-A Conv., L.P............................ 0.59% 14 Parker & Parsley 90-A, L.P.................................. 2.16% 147 Parker & Parsley 90-B Conv., L.P............................ 0.67% 80 Parker & Parsley 90-B, L.P.................................. 0.26% 83 Parker & Parsley 90-C Conv., L.P............................ 0.40% 30 Parker & Parsley 90-C, L.P.................................. 0.22% 27 Parker & Parsley Private Investment 90, L.P................. 0.55% 60 Parker & Parsley 90 Spraberry Private Dev., L.P............. 0.00% -- Parker & Parsley 91-A, L.P.(c).............................. 0.00% 45 Parker & Parsley 91-B, L.P.(c).............................. 0.00% 10
--------------- (a) Represents Pioneer USA's partnership interests in each partnership as a limited partner of the partnership. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in any participating partnership. However, as a result of the merger of each participating partnership, Pioneer USA will own 100% of the properties of the partnership including properties attributable to its partnership interests in the partnership. (b) Represents percentage of limited partners' vote that Pioneer USA is entitled to vote. The voting percentage is calculated by dividing (1) Pioneer USA's ownership percentage of the partnership interests held as a limited partner, by (2) the percentage of partnership interests held by all limited partners in the partnership. For example, if the limited partners of a partnership represent 99% of the partnership and Pioneer USA owns 5% of the partnership interests as a limited partner in that partnership, Pioneer USA's voting percentage is 5.05%. (c) Pioneer USA is not entitled to vote partnership interests it holds as limited partner in this partnership. (d) Represents Pioneer USA's share of the initial investment by limited partners as shown on Table 1. A-7 118 TABLE 7 HISTORICAL QUARTERLY PARTNERSHIP DISTRIBUTIONS TO THE LIMITED PARTNERS PER $1,000 INVESTMENT FROM INCEPTION THROUGH JULY 31, 2001
QUARTERLY DISTRIBUTIONS TO LIMITED PARTNERS PER $1,000 INVESTMENT(A) ---------------------------------------------------------------------- INCEPTION QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER TO ENDED ENDED ENDED ENDED ENDED ENDED 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00 6/30/00 --------- ------- ------- ------- -------- ------- ------- Parker & Parsley 81-I, Ltd. ....... $ 616.71 $0.69 $ -- $ 3.26 $ 2.42 $ 4.24 $ 5.53 Parker & Parsley 81-II, Ltd. ...... 808.37 -- 0.35 1.26 2.71 2.01 2.99 Parker & Parsley 82-I, Ltd. ....... 946.73 0.62 0.53 2.03 1.09 3.93 4.77 Parker & Parsley 82-II, Ltd. ...... 1,099.24 0.83 -- 3.34 3.48 4.98 6.07 Parker & Parsley 82-III, Ltd. ..... 924.16 -- 1.69 2.92 5.07 7.49 7.80 Parker & Parsley 83-A, Ltd. ....... 1,264.54 -- -- 4.11 5.20 7.22 7.30 Parker & Parsley 83-B, Ltd. ....... 1,458.60 0.96 1.79 4.89 6.30 8.70 9.68 Parker & Parsley 84-A, Ltd. ....... 1,384.63 0.80 2.78 4.69 6.81 8.28 11.17 Parker & Parsley 85-A, Ltd. ....... 678.73 0.83 1.49 4.98 9.55 7.09 11.26 Parker & Parsley 85-B, Ltd. ....... 876.32 -- 3.17 4.12 7.19 7.95 9.04 Parker & Parsley Private Investment 85-A, Ltd. ...................... 997.86 3.16 5.23 8.79 12.34 15.51 20.44 Parker & Parsley Selected 85 Private Investment, Ltd. ........ 872.24 1.66 -- 4.33 6.68 9.18 11.68 Parker & Parsley 86-A, Ltd. ....... 1,279.93 0.79 2.23 6.38 5.82 8.66 11.38 Parker & Parsley 86-B, Ltd. ....... 1,469.69 1.53 5.01 5.85 8.40 10.40 13.08 Parker & Parsley 86-C, Ltd. ....... 1,401.81 0.82 2.38 1.77 7.30 8.35 9.67 Parker & Parsley Private Investment 86, Ltd. ........................ 1,525.50 1.23 1.22 5.88 5.44 14.07 9.36 Parker & Parsley 87-A Conv., Ltd. ............................ 1,228.63 1.83 2.20 6.07 7.90 11.58 15.18 Parker & Parsley 87-A, Ltd. ....... 1,228.70 1.83 2.20 6.07 7.90 11.58 15.18 Parker & Parsley 87-B Conv., Ltd. ............................ 1,154.18 1.85 2.29 5.50 8.64 10.07 12.58 Parker & Parsley 87-B, Ltd. ....... 1,154.25 1.85 2.29 5.50 8.64 10.07 12.58 Parker & Parsley Producing Properties 87-A, Ltd. ........... 889.65 1.49 0.89 6.21 9.75 10.92 13.50 Parker & Parsley Producing Properties 87-B, Ltd. ........... 956.04 3.97 1.02 8.98 13.99 18.53 24.65 Parker & Parsley Private Investment 87, Ltd. ........................ 1,457.32 2.20 4.09 8.56 9.55 12.55 13.19 Parker & Parsley 88-A Conv., L.P. ............................ 991.51 3.16 3.06 7.97 11.11 12.48 15.67 Parker & Parsley 88-A, L.P. ....... 991.61 3.16 3.06 7.97 11.11 12.48 15.67 Parker & Parsley 88-B Conv., L.P. ............................ 966.33 3.44 2.88 8.95 13.65 18.22 20.69 Parker & Parsley 88-B, L.P. ....... 966.37 3.44 2.88 8.95 13.65 18.22 20.69 Parker & Parsley 88-C Conv., L.P. ............................ 913.42 3.92 2.34 4.27 11.12 16.38 18.34 Parker & Parsley 88-C, L.P. ....... 913.01 3.92 2.34 4.27 11.12 16.38 18.34 Parker & Parsley Producing Properties 88-A, L.P. ........... 1,075.69 6.51 4.02 7.58 11.34 21.95 19.09 Parker & Parsley Private Investment 88, L.P. ........................ 1,031.07 3.57 6.66 8.39 12.47 15.99 19.23 Parker & Parsley 89-A Conv., L.P. ............................ 911.13 2.66 2.77 9.16 13.97 17.96 18.39 Parker & Parsley 89-A, L.P. ....... 911.19 2.66 2.77 9.16 13.97 17.96 18.39 Parker & Parsley 89-B Conv., L.P. ............................ 787.19 3.26 1.22 8.31 11.43 14.28 18.94 Parker & Parsley 89-B, L.P. ....... 787.20 3.26 1.22 8.31 11.43 14.28 18.94 Parker & Parsley Private Investment 89, L.P. ........................ 689.19 1.02 1.85 6.67 4.97 13.32 15.00 Parker & Parsley 90-A Conv., L.P. ............................ 784.83 3.18 1.68 8.12 9.46 12.70 14.52 Parker & Parsley 90-A, L.P. ....... 784.89 3.18 1.68 8.12 9.46 12.70 14.52 Parker & Parsley 90-B Conv., L.P. ............................ 600.45 2.10 1.80 7.47 11.46 14.98 15.20 Parker & Parsley 90-B, L.P. ....... 600.53 2.10 1.80 7.47 11.46 14.98 15.20 Parker & Parsley 90-C Conv., L.P. ............................ 537.51 0.95 -- 6.26 10.83 13.62 14.90 Parker & Parsley 90-C, L.P. ....... 537.52 0.95 -- 6.26 10.83 13.62 14.90 Parker & Parsley Private Investment 90, L.P. ........................ 673.63 2.14 3.11 5.62 12.23 15.05 18.11 Parker & Parsley 90 Spraberry Private Dev., L.P. .............. 632.08 3.71 3.09 6.40 13.59 16.68 13.98 Parker & Parsley 91-A, L.P. ....... 663.47 3.99 6.33 11.37 15.54 20.76 23.19 Parker & Parsley 91-B, L.P. ....... 526.98 3.95 7.05 13.55 18.24 21.87 26.88 QUARTERLY DISTRIBUTIONS TO LIMITED PARTNERS PER $1,000 INVESTMENT(A) -------------------------------------------------------------------- QUARTER QUARTER QUARTER QUARTER MONTH INCEPTION ENDED ENDED ENDED ENDED ENDED TO 9/30/00 12/31/00 3/31/01 6/30/01 7/31/01 7/31/01 ------- -------- ------- ------- ------- --------- Parker & Parsley 81-I, Ltd. ....... $ 4.53 $ 5.41 $ 6.91 $ -- $ 7.43 $ 657.13 Parker & Parsley 81-II, Ltd. ...... 5.00 5.97 6.88 -- 6.33 841.87 Parker & Parsley 82-I, Ltd. ....... 6.70 4.06 8.08 -- 7.39 985.93 Parker & Parsley 82-II, Ltd. ...... 4.58 6.41 8.01 -- 5.04 1,141.98 Parker & Parsley 82-III, Ltd. ..... 9.38 8.84 10.27 -- 7.72 985.34 Parker & Parsley 83-A, Ltd. ....... 9.04 10.25 12.04 -- 8.56 1,328.26 Parker & Parsley 83-B, Ltd. ....... 11.28 10.66 11.10 -- 8.20 1,532.16 Parker & Parsley 84-A, Ltd. ....... 12.41 13.00 14.37 -- 12.51 1,471.45 Parker & Parsley 85-A, Ltd. ....... 9.94 10.41 13.70 -- 9.33 757.31 Parker & Parsley 85-B, Ltd. ....... 9.26 12.47 15.53 -- 9.76 954.81 Parker & Parsley Private Investment 85-A, Ltd. ...................... 16.65 16.32 18.72 -- 16.62 1,131.64 Parker & Parsley Selected 85 Private Investment, Ltd. ........ 12.92 12.98 18.63 -- 16.85 967.15 Parker & Parsley 86-A, Ltd. ....... 12.54 13.08 18.73 -- 9.62 1,369.16 Parker & Parsley 86-B, Ltd. ....... 14.24 15.95 18.32 -- 13.25 1,575.72 Parker & Parsley 86-C, Ltd. ....... 12.04 12.45 15.95 -- 14.38 1,486.92 Parker & Parsley Private Investment 86, Ltd. ........................ 17.03 15.11 22.67 -- 16.82 1,634.33 Parker & Parsley 87-A Conv., Ltd. ............................ 13.96 12.79 16.86 -- 15.03 1,332.03 Parker & Parsley 87-A, Ltd. ....... 13.96 12.79 16.86 -- 15.03 1,332.10 Parker & Parsley 87-B Conv., Ltd. ............................ 13.53 12.84 17.13 -- 12.85 1,251.46 Parker & Parsley 87-B, Ltd. ....... 13.53 12.84 17.13 -- 12.85 1,251.53 Parker & Parsley Producing Properties 87-A, Ltd. ........... 12.12 14.11 21.51 -- 20.23 1,000.38 Parker & Parsley Producing Properties 87-B, Ltd. ........... 26.75 26.21 27.53 -- 19.38 1,127.05 Parker & Parsley Private Investment 87, Ltd. ........................ 14.14 16.03 18.36 -- 19.75 1,575.74 Parker & Parsley 88-A Conv., L.P. ............................ 17.33 16.95 20.80 -- 20.40 1,120.44 Parker & Parsley 88-A, L.P. ....... 17.33 16.95 20.80 -- 20.40 1,120.54 Parker & Parsley 88-B Conv., L.P. ............................ 22.63 25.37 28.91 -- 18.63 1,129.70 Parker & Parsley 88-B, L.P. ....... 22.63 25.37 28.91 -- 18.63 1,129.74 Parker & Parsley 88-C Conv., L.P. ............................ 19.83 21.01 24.91 -- 17.26 1,052.80 Parker & Parsley 88-C, L.P. ....... 19.83 21.01 24.91 -- 17.26 1,052.39 Parker & Parsley Producing Properties 88-A, L.P. ........... 18.82 21.76 27.21 -- 20.76 1,234.73 Parker & Parsley Private Investment 88, L.P. ........................ 23.09 21.51 23.55 -- 20.42 1,185.95 Parker & Parsley 89-A Conv., L.P. ............................ 20.40 23.38 29.49 -- 20.93 1,070.24 Parker & Parsley 89-A, L.P. ....... 20.40 23.38 29.49 -- 20.93 1,070.30 Parker & Parsley 89-B Conv., L.P. ............................ 20.23 20.99 26.50 -- 19.07 931.42 Parker & Parsley 89-B, L.P. ....... 20.23 20.99 26.50 -- 19.07 931.43 Parker & Parsley Private Investment 89, L.P. ........................ 16.66 20.33 13.22 -- 18.24 800.47 Parker & Parsley 90-A Conv., L.P. ............................ 17.43 19.18 19.99 -- 18.61 909.70 Parker & Parsley 90-A, L.P. ....... 17.43 19.18 19.99 -- 18.61 909.76 Parker & Parsley 90-B Conv., L.P. ............................ 19.51 19.68 23.73 -- 20.34 736.72 Parker & Parsley 90-B, L.P. ....... 19.51 19.68 23.73 -- 20.34 736.80 Parker & Parsley 90-C Conv., L.P. ............................ 19.01 17.84 21.19 -- 15.22 657.33 Parker & Parsley 90-C, L.P. ....... 19.01 17.84 21.18 -- 15.22 657.33 Parker & Parsley Private Investment 90, L.P. ........................ 20.29 25.10 27.49 -- 20.44 823.21 Parker & Parsley 90 Spraberry Private Dev., L.P. .............. 14.00 13.98 20.44 -- 22.40 760.35 Parker & Parsley 91-A, L.P. ....... 26.03 30.05 27.29 -- 26.41 854.43 Parker & Parsley 91-B, L.P. ....... 33.92 35.07 24.81 -- 25.28 737.60
--------------- (a) Past cash distributions to limited partners are not necessarily indicative of future cash distributions. Limited partners should not assume that any nonparticipating partnership will continue to make cash distributions at levels similar to those shown. See "The Merger of Each Partnership -- Distribution of Pioneer Parent Common Stock." A-8 119 TABLE 8 ANNUAL REPURCHASE PRICES AND AGGREGATE ANNUAL REPURCHASE PAYMENTS
2001 2000 1999 ----------------------- ----------------------- ----------------------- REPURCHASE AGGREGATE REPURCHASE AGGREGATE REPURCHASE AGGREGATE PRICE PER ANNUAL PRICE PER ANNUAL PRICE PER ANNUAL $1,000 REPURCHASE $1,000 REPURCHASE $1,000 REPURCHASE INVESTMENT PAYMENTS INVESTMENT PAYMENTS INVESTMENT PAYMENTS ---------- ---------- ---------- ---------- ---------- ---------- Parker & Parsley 82-I, Ltd............... $137.97 $ 15,298 $ 71.89 $ 4,745 $ 7.52 $ 94 Parker & Parsley 82-II, Ltd.............. 133.72 10,822 102.38 1,024 26.17 131 Parker & Parsley 82-III, Ltd............. 151.60 -- 109.73 1,097 12.17 284 Parker & Parsley 83-A, Ltd............... 196.67 22,072 137.59 9,494 27.05 541 Parker & Parsley 83-B, Ltd............... 210.15 39,967 153.89 3,078 43.46 -- Parker & Parsley 84-A, Ltd............... 267.03 56,737 175.78 7,031 45.72 1,143 -------- ------- ------ $144,896 $26,469 $2,193 ======== ======= ======
A-9 120 TABLE 9 PARTICIPATION IN COSTS AND REVENUES OF EACH PARTNERSHIP
CAPITAL COSTS REVENUES AND EXPENSES ------------------------------------------ ------------------------------------------ NONMANAGING NONMANAGING GENERAL LIMITED GENERAL LIMITED PIONEER USA(A) PARTNERS(A) PARTNERS(A) PIONEER USA(A) PARTNERS(A) PARTNERS(A) -------------- ----------- ----------- -------------- ----------- ----------- Parker & Parsley 81-I, Ltd. ............ 8% 2% 90% 20% 5% 75% Parker & Parsley 81-II, Ltd. ........... 8% 2% 90% 20% 5% 75% Parker & Parsley 82-I, Ltd. ............ 8% 2% 90% 20% 5% 75% Parker & Parsley 82-II, Ltd. ........... 8% 2% 90% 20% 5% 75% Parker & Parsley 82-III, Ltd. .......... 8% 2% 90% 20% 5% 75% Parker & Parsley 83-A, Ltd.(b).......... 8% 2% 90% 20% 5% 75% Parker & Parsley 83-B, Ltd.(b).......... 8% 2% 90% 20% 5% 75% Parker & Parsley 84-A, Ltd.(b).......... 8% 2% 90% 20% 5% 75% Parker & Parsley 85-A, Ltd. ............ 1% -- 99% 1% -- 99% Parker & Parsley 85-B, Ltd. ............ 1% -- 99% 1% -- 99% Parker & Parsley Private Investment 85-A, Ltd. ............................ 1% -- 99% 1% -- 99% Parker & Parsley Selected 85 Private Investment, Ltd. ...................... 1% -- 99% 1% -- 99% Parker & Parsley 86-A, Ltd. ............ 1% -- 99% 1% -- 99% Parker & Parsley 86-B, Ltd. ............ 1% -- 99% 1% -- 99% Parker & Parsley 86-C, Ltd. ............ 1% -- 99% 1% -- 99% Parker & Parsley Private Investment 86, Ltd. .................................. 1% -- 99% 1% -- 99% Parker & Parsley 87-A Conv., Ltd. ...... 1% -- 99% 1% -- 99% Parker & Parsley 87-A, Ltd. ............ 1% -- 99% 1% -- 99% Parker & Parsley 87-B Conv., Ltd. ...... 1% -- 99% 1% -- 99% Parker & Parsley 87-B, Ltd. ............ 1% -- 99% 1% -- 99% Parker & Parsley Producing Properties 87-A, Ltd. ............................ 1% -- 99% 1% -- 99% Parker & Parsley Producing Properties 87-B, Ltd. ............................ 1% -- 99% 1% -- 99% Parker & Parsley Private Investment 87, Ltd. .................................. 1% -- 99% 1% -- 99% Parker & Parsley 88-A Conv., L.P. ...... 1% -- 99% 1% -- 99% Parker & Parsley 88-A, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley 88-B Conv., L.P. ...... 1% -- 99% 1% -- 99% Parker & Parsley 88-B, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley 88-C Conv., L.P. ...... 1% -- 99% 1% -- 99% Parker & Parsley 88-C, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley Producing Properties 88-A, L.P. ............................ 1% -- 99% 1% -- 99% Parker & Parsley Private Investment 88, L.P. .................................. 1% -- 99% 1% -- 99% Parker & Parsley 89-A Conv., L.P. ...... 1% -- 99% 1% -- 99% Parker & Parsley 89-A, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley 89-B Conv., L.P. ...... 1% -- 99% 1% -- 99% Parker & Parsley 89-B, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley Private Investment 89, L.P. .................................. 1% -- 99% 1% -- 99% Parker & Parsley 90-A Conv., L.P. ...... 1% -- 99% 1% -- 99% Parker & Parsley 90-A, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley 90-B Conv., L.P. ...... 1% -- 99% 1% -- 99% Parker & Parsley 90-B, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley 90-C Conv., L.P. ...... 1% -- 99% 1% -- 99% Parker & Parsley 90-C, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley Private Investment 90, L.P. .................................. 1% -- 99% 1% -- 99% Parker & Parsley 90 Spraberry Private Dev., L.P. ............................ 1% -- 99% 1% -- 99% Parker & Parsley 91-A, L.P. ............ 1% -- 99% 1% -- 99% Parker & Parsley 91-B, L.P. ............ 1% -- 99% 1% -- 99%
--------------- (a) These percentages represent the sharing ownerships as set forth in the prospectus for each partnership. Includes Pioneer USA's partnership interests in each partnership as: (1) the sole or managing general partner of the partnership; (2) a limited partner of the partnership; and (3) the sole general partner of each nonmanaging general partner. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in any participating partnership. (b) Incremental direct costs 100% to limited partners. A-10 121 TABLE 10 AVERAGE OIL, NATURAL GAS LIQUIDS AND GAS SALES PRICES AND PRODUCTION COSTS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 AND THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
AVERAGE SALES PRICE -------------------------------------------------------------------------------------- OIL (PER BBL) NGL (PER BBL) ------------------------------------------ ----------------------------------------- FOR THE SIX FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, --------------- ------------------------ --------------- ----------------------- 2001 2000 2000 1999 1998 2001 2000 2000 1999 1998 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Parker & Parsley 81-I, Ltd. ............. $27.89 $27.49 $29.26 $16.94 $13.33 $15.26 $13.83 $14.60 $ 9.22 $6.40 Parker & Parsley 81-II, Ltd. ............ 27.41 27.24 29.26 16.67 13.16 17.43 14.40 15.59 8.70 6.73 Parker & Parsley 82-I, Ltd. ............. 27.66 27.45 29.39 16.61 13.32 16.58 13.16 14.44 8.96 7.20 Parker & Parsley 82-II, Ltd. ............ 27.79 27.51 29.47 17.08 13.14 17.15 13.63 15.01 9.80 6.93 Parker & Parsley 82-III, Ltd. ........... 27.93 27.90 29.67 17.13 13.31 15.02 12.30 13.86 9.13 6.42 Parker & Parsley 83-A, Ltd. ............. 27.56 27.55 29.54 16.96 13.34 16.66 14.30 15.58 9.42 6.49 Parker & Parsley 83-B, Ltd. ............. 27.63 27.78 29.69 17.18 13.30 16.64 14.10 15.47 10.00 6.79 Parker & Parsley 84-A, Ltd. ............. 27.02 27.63 29.55 17.36 13.30 14.22 13.27 14.00 9.03 6.08 Parker & Parsley 85-A, Ltd. ............. 27.71 27.78 29.38 17.11 13.27 16.01 13.12 14.20 9.71 6.51 Parker & Parsley 85-B, Ltd. ............. 27.95 28.58 30.02 18.07 13.30 16.85 14.29 15.96 10.10 6.95 Parker & Parsley Private Investment 85-A, Ltd. .................................. 27.93 28.37 30.19 16.91 13.20 15.56 13.98 15.22 9.95 6.49 Parker & Parsley Selected 85 Private Investment, Ltd. ...................... 27.92 27.61 29.59 17.27 13.44 16.24 14.13 15.52 10.49 6.99 Parker & Parsley 86-A, Ltd. ............. 27.73 27.71 28.87 17.00 13.32 16.75 14.19 14.94 9.63 6.53 Parker & Parsley 86-B, Ltd. ............. 27.88 27.57 29.45 17.18 13.08 16.48 13.43 15.00 9.39 6.80 Parker & Parsley 86-C, Ltd. ............. 27.42 27.64 29.43 17.18 13.26 15.98 13.72 15.06 9.27 6.46 Parker & Parsley Private Investment 86, Ltd. .................................. 27.77 27.85 29.45 17.34 13.34 16.28 13.35 15.01 9.27 6.69 Parker & Parsley 87-A Conv., Ltd. ....... 27.45 27.41 29.46 17.06 13.22 16.73 14.63 16.01 9.81 6.76 Parker & Parsley 87-A, Ltd. ............. 27.45 27.41 29.46 17.06 13.22 16.73 14.63 16.01 9.81 6.76 Parker & Parsley 87-B Conv., Ltd. ....... 27.14 27.30 29.31 16.71 13.17 17.29 15.08 16.90 9.73 6.82 Parker & Parsley 87-B, Ltd. ............. 27.14 27.30 29.31 16.71 13.17 17.29 15.08 16.90 9.73 6.82 Parker & Parsley Producing Properties 87-A, Ltd. ............................ 27.14 27.33 29.34 16.80 13.04 11.84 11.41 12.12 7.32 5.46 Parker & Parsley Producing Properties 87-B, Ltd. ............................ 26.89 27.96 29.36 17.44 13.05 17.04 14.82 16.68 10.32 6.58 Parker & Parsley Private Investment 87, Ltd. .................................. 27.01 28.16 29.56 16.82 13.05 16.91 14.34 16.17 9.41 6.55 Parker & Parsley 88-A Conv., L.P. ....... 26.40 28.50 29.28 16.91 13.59 16.19 13.81 15.30 9.30 6.57 Parker & Parsley 88-A, L.P. ............. 26.40 28.50 29.28 16.91 13.59 16.19 13.81 15.30 9.30 6.57 Parker & Parsley 88-B Conv., L.P. ....... 28.24 26.91 29.29 17.17 13.24 17.47 14.08 16.02 10.03 6.91 Parker & Parsley 88-B, L.P. ............. 28.24 26.91 29.29 17.17 13.24 17.47 14.08 16.02 10.03 6.91 Parker & Parsley 88-C Conv., L.P. ....... 28.40 26.96 29.33 17.24 13.30 17.07 13.94 15.83 10.42 6.94 Parker & Parsley 88-C, L.P. ............. 28.40 26.96 29.33 17.24 13.30 17.07 13.94 15.83 10.42 6.94 Parker & Parsley Producing Properties 88-A, L.P. ............................ 27.18 27.71 29.44 16.82 13.14 14.40 13.93 14.28 9.18 6.31
A-11 122
AVERAGE SALES PRICE -------------------------------------------------------------------------------------- OIL (PER BBL) NGL (PER BBL) ------------------------------------------ ----------------------------------------- FOR THE SIX FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, --------------- ------------------------ --------------- ----------------------- 2001 2000 2000 1999 1998 2001 2000 2000 1999 1998 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Parker & Parsley Private Investment 88, L.P. .................................. 27.55 27.54 29.45 17.01 13.31 16.27 14.01 15.61 9.32 6.79 Parker & Parsley 89-A Conv., L.P. ....... 27.77 27.56 29.59 17.11 13.23 14.50 13.74 15.42 9.54 6.95 Parker & Parsley 89-A, L.P. ............. 27.77 27.56 29.59 17.11 13.23 14.50 13.74 15.42 9.54 6.95 Parker & Parsley 89-B Conv., L.P. ....... 27.69 27.44 29.21 16.96 13.26 17.02 13.93 15.56 9.57 6.94 Parker & Parsley 89-B, L.P. ............. 27.69 27.44 29.21 16.96 13.26 17.02 13.93 15.56 9.57 6.94 Parker & Parsley Private Investment 89, L.P. .................................. 27.14 27.07 29.00 17.06 13.28 14.90 13.37 14.86 8.69 6.57 Parker & Parsley 90-A Conv., L.P. ....... 27.89 27.46 29.32 17.06 13.20 16.87 13.56 15.62 9.58 7.02 Parker & Parsley 90-A, L.P. ............. 27.89 27.46 29.32 17.06 13.20 16.87 13.56 15.62 9.58 7.02 Parker & Parsley 90-B Conv., L.P. ....... 28.26 27.72 29.23 17.23 13.12 16.09 14.00 15.45 9.49 6.60 Parker & Parsley 90-B, L.P. ............. 28.26 27.72 29.23 17.23 13.12 16.09 14.00 15.45 9.49 6.60 Parker & Parsley 90-C Conv., L.P. ....... 27.55 27.46 29.34 17.13 13.24 16.04 12.80 14.91 9.31 6.80 Parker & Parsley 90-C, L.P. ............. 27.55 27.46 29.34 17.13 13.24 16.04 12.80 14.91 9.31 6.80 Parker & Parsley Private Investment 90, L.P. .................................. 27.78 27.42 29.35 17.30 13.19 17.09 14.06 15.82 9.46 6.77 Parker & Parsley 90 Spraberry Private Dev., L.P. ............................ 27.13 27.19 29.17 17.04 13.06 16.74 13.22 15.56 9.70 6.89 Parker & Parsley 91-A, L.P. ............. 27.42 27.85 29.90 17.57 13.15 12.09 13.94 14.94 9.34 6.44 Parker & Parsley 91-B, L.P. ............. 27.93 28.58 30.09 17.90 13.33 16.07 14.84 16.50 10.15 6.79
AVERAGE SALES PRICE AVERAGE PRODUCTION COSTS (LIFTING) -------------------------------------- ----------------------------------------- GAS (PER MCF) COST PER EQUIVALENT (BBL)(A) -------------------------------------- ----------------------------------------- FOR THE SIX FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, -------------- --------------------- ---------------- ---------------------- 2001 2000 2000 1999 1998 2001 2000 2000 1999 1998 ----- ----- ----- ----- ----- ------ ------- ------ ----- ----- Parker & Parsley 81-I, Ltd. ................. $4.83 $$2.60 $3.22 $1.78 $1.78 $10.13 $ 9.37 $ 9.52 $8.39 $8.74 Parker & Parsley 81-II, Ltd. ................ 5.12 2.26 3.07 1.82 1.80 13.40 12.28 11.46 8.57 8.80 Parker & Parsley 82-I, Ltd. ................. 4.77 2.71 3.29 1.95 1.82 12.32 11.42 11.91 9.80 9.88 Parker & Parsley 82-II, Ltd. ................ 5.07 2.33 2.98 1.79 1.64 12.61 9.39 10.25 8.09 7.88 Parker & Parsley 82-III, Ltd. ............... 4.34 1.95 2.54 1.65 1.53 11.44 8.75 9.20 8.06 9.00 Parker & Parsley 83-A, Ltd. ................. 4.95 2.27 3.02 1.78 1.60 12.32 10.82 10.52 8.64 8.76 Parker & Parsley 83-B, Ltd. ................. 4.80 2.13 2.83 1.66 1.54 13.54 8.95 9.12 7.60 8.27 Parker & Parsley 84-A, Ltd. ................. 4.04 1.86 2.49 1.47 1.33 10.65 8.54 8.64 7.70 7.66 Parker & Parsley 85-A, Ltd. ................. 4.75 2.04 2.66 1.70 1.56 12.14 9.57 9.66 7.02 8.70 Parker & Parsley 85-B, Ltd. ................. 5.05 2.23 2.92 1.72 1.58 10.60 10.88 10.19 7.70 8.48 Parker & Parsley Private Investment 85-A, Ltd. ...................................... 4.55 1.92 2.65 1.54 1.41 8.66 7.77 7.78 6.40 6.96 Parker & Parsley Selected 85 Private Investment, Ltd. .......................... 4.57 2.12 2.77 1.67 1.56 10.07 8.66 9.43 8.01 7.82 Parker & Parsley 86-A, Ltd. ................. 4.74 1.96 2.56 1.57 1.46 14.09 8.95 8.86 7.83 9.36 Parker & Parsley 86-B, Ltd. ................. 5.01 2.13 2.82 1.71 1.58 10.82 8.98 8.87 7.89 7.64
A-12 123
AVERAGE SALES PRICE AVERAGE PRODUCTION COSTS (LIFTING) ------------------------------------------ ----------------------------------------- GAS (PER MCF) COST PER EQUIVALENT (BBL)(A) ------------------------------------------ ----------------------------------------- FOR THE SIX FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED JUNE 30, DECEMBER 31, JUNE 30, DECEMBER 31, --------------- ------------------------ --------------- ----------------------- 2001 2000 2000 1999 1998 2001 2000 2000 1999 1998 ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Parker & Parsley 86-C, Ltd. ............. 4.64 2.05 2.78 1.58 1.49 11.07 10.87 10.31 8.66 7.67 Parker & Parsley Private Investment 86, Ltd. .................................. 5.09 2.24 2.90 1.73 1.61 12.11 11.35 10.84 9.08 7.67 Parker & Parsley 87-A Conv., Ltd. ....... 4.69 2.17 2.86 1.68 1.54 9.89 8.00 9.11 7.19 7.78 Parker & Parsley 87-A, Ltd. ............. 4.69 2.17 2.86 1.68 1.54 9.89 8.00 9.11 7.19 7.78 Parker & Parsley 87-B Conv., Ltd. ....... 5.13 2.13 2.98 1.64 1.49 11.64 8.37 8.63 7.44 6.65 Parker & Parsley 87-B, Ltd. ............. 5.13 2.13 2.98 1.64 1.49 11.64 8.37 8.63 7.44 6.65 Parker & Parsley Producing Properties 87-A, Ltd. ............................ 4.01 2.03 2.56 1.46 1.23 11.65 11.81 12.48 8.97 9.26 Parker & Parsley Producing Properties 87-B, Ltd. ............................ 4.86 2.09 2.88 1.62 1.46 12.13 8.84 8.42 8.30 7.84 Parker & Parsley Private Investment 87, Ltd. .................................. 4.78 2.24 2.99 1.71 1.59 9.91 9.65 9.13 6.77 6.81 Parker & Parsley 88-A Conv., L.P. ....... 4.25 2.19 2.99 1.69 1.56 9.18 9.35 8.85 5.98 7.06 Parker & Parsley 88-A, L.P. ............. 4.25 2.19 2.99 1.69 1.56 9.18 9.35 8.85 5.98 7.06 Parker & Parsley 88-B Conv., L.P. ....... 6.03 2.12 2.87 1.70 1.56 10.33 7.49 7.84 7.04 7.51 Parker & Parsley 88-B, L.P. ............. 6.03 2.12 2.87 1.70 1.56 10.33 7.49 7.84 7.04 7.51 Parker & Parsley 88-C Conv., L.P. ....... 5.64 2.10 2.82 1.70 1.55 10.23 7.81 8.10 7.43 7.84 Parker & Parsley 88-C, L.P. ............. 5.64 2.10 2.82 1.70 1.55 10.23 7.81 8.10 7.43 7.84 Parker & Parsley Producing Properties 88-A, L.P. ............................ 4.35 1.90 2.55 1.48 1.41 8.61 11.63 9.69 6.31 5.87 Parker & Parsley Private Investment 88, L.P. .................................. 4.88 2.11 2.82 1.69 1.55 9.69 7.45 7.57 6.04 6.60 Parker & Parsley 89-A Conv., L.P. ....... 5.03 2.35 3.07 1.81 1.74 9.67 8.85 8.23 6.75 6.92 Parker & Parsley 89-A, L.P. ............. 5.03 2.35 3.07 1.81 1.74 9.67 8.85 8.23 6.75 6.92 Parker & Parsley 89-B Conv., L.P. ....... 4.91 2.18 2.90 1.72 1.60 10.36 8.32 8.59 7.58 7.30 Parker & Parsley 89-B, L.P. ............. 4.91 2.18 2.90 1.72 1.60 10.36 8.32 8.59 7.58 7.30 Parker & Parsley Private Investment 89, L.P. .................................. 4.53 1.96 2.73 1.57 1.46 12.80 9.08 8.99 8.69 6.80 Parker & Parsley 90-A Conv., L.P. ....... 4.98 2.20 2.94 1.76 1.64 10.06 9.08 9.43 7.38 6.93 Parker & Parsley 90-A, L.P. ............. 4.98 2.20 2.94 1.76 1.64 10.06 9.08 9.43 7.38 6.93 Parker & Parsley 90-B Conv., L.P. ....... 4.79 2.08 2.84 1.62 1.50 9.51 8.65 8.68 7.28 7.31 Parker & Parsley 90-B, L.P. ............. 4.79 2.08 2.84 1.62 1.50 9.51 8.65 8.68 7.28 7.31 Parker & Parsley 90-C Conv., L.P. ....... 4.91 2.11 2.89 1.70 1.55 11.40 8.60 8.83 7.93 8.22 Parker & Parsley 90-C, L.P. ............. 4.91 2.11 2.89 1.70 1.55 11.40 8.60 8.83 7.93 8.22 Parker & Parsley Private Investment 90, L.P. .................................. 4.97 2.14 2.90 1.72 1.57 9.52 7.73 8.22 7.01 8.24 Parker & Parsley 90 Spraberry Private Dev., L.P. ............................ 4.95 2.12 2.91 1.65 1.60 8.13 9.17 8.97 7.41 7.44 Parker & Parsley 91-A, L.P. ............. 5.35 2.27 3.06 1.70 1.56 9.32 7.57 7.38 6.31 6.04 Parker & Parsley 91-B, L.P. ............. 4.70 2.14 2.93 1.61 1.47 9.62 6.57 6.88 5.72 5.96
--------------- (a) Gas production is converted to oil equivalents at the rate of six mcf per barrel, representing the relative energy content of natural gas and oil. A-13 124 TABLE 11 PROVED RESERVES ATTRIBUTABLE TO PIONEER USA, NONMANAGING GENERAL PARTNERS AND LIMITED PARTNERS AS OF DECEMBER 31, 2000
TOTAL PROVED RESERVES --------------------------------------------------------------------------------------------------- NONMANAGING GENERAL PIONEER USA(A) PARTNERS(B) LIMITED PARTNERS(C) TOTAL(D) ---------------------- ---------------------- ----------------------- ----------------------- OIL & OIL & OIL & OIL & NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF) ---------- --------- ---------- --------- ---------- ---------- ---------- ---------- Parker & Parsley 81-I, Ltd. ..................... 57,816 116,841 4,224 8,535 149,140 301,399 211,180 426,775 Parker & Parsley 81-II, Ltd. ..................... 49,524 72,494 2,029 2,970 151,342 221,535 202,895 296,999 Parker & Parsley 82-I, Ltd. ..................... 116,859 262,924 4,026 9,058 236,971 533,163 357,856 805,145 Parker & Parsley 82-II, Ltd. ..................... 111,975 171,077 3,444 5,262 292,783 447,315 408,202 623,654 Parker & Parsley 82-III, Ltd. ..................... 88,780 85,126 2,916 2,796 219,396 210,367 311,092 298,289 Parker & Parsley 83-A, Ltd. ..................... 280,513 416,062 10,912 16,185 747,838 1,109,206 1,039,263 1,541,453 Parker & Parsley 83-B, Ltd. ..................... 348,652 567,327 13,365 21,748 910,884 1,482,192 1,272,901 2,071,267 Parker & Parsley 84-A, Ltd. ..................... 355,491 589,384 15,185 25,176 979,100 1,623,291 1,349,776 2,237,851 Parker & Parsley 85-A, Ltd. ..................... 11,187 15,154 -- -- 371,156 502,769 382,343 517,923 Parker & Parsley 85-B, Ltd. ..................... 5,233 7,901 -- -- 299,222 451,758 304,455 459,659 Parker & Parsley Private Investment 85-A, Ltd. .... 11,095 12,053 -- -- 317,553 344,957 328,648 357,010 Parker & Parsley Selected 85 Private Investment, Ltd. ..................... 6,238 10,351 -- -- 225,761 374,615 231,999 384,966 Parker & Parsley 86-A, Ltd. ..................... 6,075 11,653 -- -- 446,620 856,663 452,695 868,316 Parker & Parsley 86-B, Ltd. ..................... 16,246 21,064 -- -- 919,385 1,192,033 935,631 1,213,097 Parker & Parsley 86-C, Ltd. ..................... 11,745 16,465 -- -- 886,520 1,242,812 898,265 1,259,277 Parker & Parsley Private Investment 86, Ltd. ...... 3,174 4,960 -- -- 314,198 491,002 317,372 495,962 Parker & Parsley 87-A Conv., Ltd. ..................... 3,451 5,510 -- -- 178,340 284,684 181,791 290,194 Parker & Parsley 87-A, Ltd. ..................... 21,378 34,166 -- -- 1,313,604 2,099,440 1,334,982 2,133,606 Parker & Parsley 87-B Conv., Ltd. ..................... 2,988 4,431 -- -- 245,753 364,425 248,741 368,856 Parker & Parsley 87-B, Ltd. ..................... 12,411 18,405 -- -- 1,003,438 1,487,986 1,015,849 1,506,391 Parker & Parsley Producing Properties 87-A, Ltd. .... 9,632 9,615 -- -- 704,591 703,402 714,223 713,017 Parker & Parsley Producing Properties 87-B, Ltd. .... 13,937 22,316 -- -- 523,830 838,757 537,767 861,073 Parker & Parsley Private Investment 87, Ltd. ...... 7,631 9,691 -- -- 755,457 959,391 763,088 969,082 Parker & Parsley 88-A Conv., L.P. ..................... 5,253 7,315 -- -- 222,619 310,018 227,872 317,333 Parker & Parsley 88-A, L.P. ..................... 18,059 25,149 -- -- 758,976 1,056,963 777,035 1,082,112 Parker & Parsley 88-B Conv., L.P. ..................... 4,220 5,515 -- -- 269,028 351,572 273,248 357,087 Parker & Parsley 88-B, L.P. ..................... 13,722 17,933 -- -- 659,140 861,434 672,862 879,367 Parker & Parsley 88-C Conv., L.P. ..................... 2,870 4,039 -- -- 219,589 308,985 222,459 313,024 Parker & Parsley 88-C, L.P. ..................... 1,908 2,685 -- -- 156,634 220,398 158,542 223,083 Parker & Parsley Producing Properties 88-A, L.P. .... 7,216 9,530 -- -- 420,265 555,001 427,481 564,531 Parker & Parsley Private Investment 88, L.P. ...... 7,708 9,375 -- -- 763,081 928,143 770,789 937,518 Parker & Parsley 89-A Conv., L.P. ..................... 2,027 2,852 -- -- 200,631 282,306 202,658 285,158 Parker & Parsley 89-A, L.P. ..................... 13,556 19,075 -- -- 588,978 828,781 602,534 847,856 Parker & Parsley 89-B Conv., L.P. ..................... 5,782 7,927 -- -- 434,277 595,395 440,059 603,322 Parker & Parsley 89-B, L.P. ..................... 9,810 13,454 -- -- 474,439 650,677 484,249 664,131 Parker & Parsley Private Investment 89, L.P. ...... 7,311 7,715 -- -- 461,062 486,555 468,373 494,270 Parker & Parsley 90-A Conv., L.P. ..................... 2,145 2,701 -- -- 132,990 167,459 135,135 170,160 Parker & Parsley 90-A, L.P. ..................... 12,362 15,527 -- -- 381,738 479,494 394,100 495,021 Parker & Parsley 90-B Conv., L.P. ..................... 12,549 16,252 -- -- 740,794 959,455 753,343 975,707 Parker & Parsley 90-B, L.P. ..................... 25,709 33,227 -- -- 2,023,300 2,615,035 2,049,009 2,648,262 Parker & Parsley 90-C Conv., L.P. ..................... 6,507 6,522 -- -- 460,152 461,213 466,659 467,735 Parker & Parsley 90-C, L.P. ..................... 9,158 9,179 -- -- 741,036 742,738 750,194 751,917 Parker & Parsley Private Investment 90, L.P. ...... 12,668 12,480 -- -- 809,113 797,112 821,781 809,592 Parker & Parsley 90 Spraberry Private Dev., L.P. ..................... 4,177 3,814 -- -- 413,544 377,597 417,721 381,411 Parker & Parsley 91-A, L.P. ..................... 13,541 19,696 -- -- 965,302 1,404,059 978,843 1,423,755 Parker & Parsley 91-B, L.P. ..................... 11,335 13,334 -- -- 1,030,441 1,212,237 1,041,776 1,225,571 --------- --------- ------ ------ ---------- ---------- ---------- ---------- Total(d)............ 1,761,624 2,750,266 56,101 91,730 25,520,011 34,775,789 27,337,736 37,617,785 ========= ========= ====== ====== ========== ========== ========== ==========
A-14 125 --------------- (a) Represents Pioneer USA's partnership interests in each partnership as: (1) the sole or managing general partner of the partnership; (2) a limited partner of the partnership; and (3) the sole general partner of each nonmanaging general partner. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in any participating partnership. However, as a result of the merger of each participating partnership, Pioneer USA will acquire 100% of the properties of the partnership including properties attributable to its partnership interests in the partnerships. (b) Represents four unaffiliated individuals' partnership interests as limited partners of each nonmanaging general partner. Excludes Pioneer USA's partnership interests as general partner of each nonmanaging general partner. (c) Represents the partnership interests of unaffiliated limited partners of each partnership. Excludes Pioneer USA's partnership interests as a limited partner of any partnership. (d) Corresponds to amounts in the reserve report prepared by Williamson Petroleum Consultants, Inc. as of December 31, 2000. A-15 126 TABLE 12 PARTNERSHIP ESTIMATED RESERVES ATTRIBUTABLE TO PIONEER USA, NONMANAGING GENERAL PARTNERS AND LIMITED PARTNERS AS OF MARCH 31, 2001
TOTAL PARTNERSHIP ESTIMATED RESERVES --------------------------------------------------------------------------------------------------- NONMANAGING GENERAL PIONEER USA(A) PARTNERS(B) LIMITED PARTNERS(C) TOTAL ---------------------- ---------------------- ----------------------- ----------------------- OIL & OIL & OIL & OIL & NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF) ---------- --------- ---------- --------- ---------- ---------- ---------- ---------- Parker & Parsley 81-I, Ltd. ..................... 46,238 91,778 3,346 6,646 125,199 247,549 174,783 345,973 Parker & Parsley 81-II, Ltd. ..................... 37,856 54,560 1,550 2,235 117,486 167,519 156,892 224,314 Parker & Parsley 82-I, Ltd. ..................... 84,829 185,562 2,911 6,366 173,823 380,596 261,563 572,524 Parker & Parsley 82-II, Ltd. ..................... 86,492 129,054 2,653 3,952 230,855 348,686 320,000 481,692 Parker & Parsley 82-III, Ltd. ..................... 70,391 67,377 2,307 2,200 176,169 171,797 248,867 241,374 Parker & Parsley 83-A, Ltd. ..................... 218,795 326,786 8,511 12,712 583,300 871,199 810,606 1,210,697 Parker & Parsley 83-B, Ltd. ..................... 291,206 465,689 11,163 17,852 760,802 1,216,655 1,063,171 1,700,196 Parker & Parsley 84-A, Ltd. ..................... 292,862 491,568 12,510 20,998 806,606 1,353,885 1,111,978 1,866,451 Parker & Parsley 85-A, Ltd. ..................... 8,049 11,144 -- -- 267,056 369,738 275,105 380,882 Parker & Parsley 85-B, Ltd. ..................... 3,895 5,744 -- -- 222,695 328,446 226,590 334,190 Parker & Parsley Private Investment 85-A, Ltd. .... 9,194 10,026 -- -- 263,153 286,963 272,347 296,989 Parker & Parsley Selected 85 Private Investment, Ltd. ..................... 5,597 9,285 -- -- 202,578 336,044 208,175 345,329 Parker & Parsley 86-A, Ltd. ..................... 4,770 9,016 -- -- 350,649 662,775 355,419 671,791 Parker & Parsley 86-B, Ltd. ..................... 13,311 17,664 -- -- 753,269 999,624 766,580 1,017,288 Parker & Parsley 86-C, Ltd. ..................... 8,904 12,643 -- -- 672,110 954,330 681,014 966,973 Parker & Parsley Private Investment 86, Ltd. ...... 2,513 4,471 -- -- 248,765 442,678 251,278 447,149 Parker & Parsley 87-A Conv., Ltd. ..................... 2,811 4,304 -- -- 145,236 222,406 148,047 226,710 Parker & Parsley 87-A, Ltd. ..................... 17,506 26,769 -- -- 1,075,693 1,644,916 1,093,199 1,671,685 Parker & Parsley 87-B Conv., Ltd. ..................... 2,452 3,631 -- -- 201,644 298,666 204,096 302,297 Parker & Parsley 87-B, Ltd. ..................... 10,184 15,084 -- -- 823,376 1,219,535 833,560 1,234,619 Parker & Parsley Producing Properties 87-A, Ltd. .... 7,452 7,410 -- -- 545,101 542,077 552,553 549,487 Parker & Parsley Producing Properties 87-B, Ltd. .... 11,567 18,737 -- -- 434,740 704,226 446,307 722,963 Parker & Parsley Private Investment 87, Ltd. ...... 4,975 6,755 -- -- 492,481 668,737 497,456 675,492 Parker & Parsley 88-A Conv., L.P....................... 4,230 5,908 -- -- 179,261 250,384 183,491 256,292 Parker & Parsley 88-A, L.P....................... 14,543 20,313 -- -- 611,206 853,701 625,749 874,014 Parker & Parsley 88-B Conv., L.P....................... 3,577 4,530 -- -- 228,017 288,783 231,594 293,313 Parker & Parsley 88-B, L.P....................... 11,631 14,730 -- -- 558,694 707,581 570,325 722,311 Parker & Parsley 88-C Conv., L.P....................... 2,409 3,281 -- -- 184,330 251,039 186,739 254,320 Parker & Parsley 88-C, L.P....................... 1,602 2,182 -- -- 131,487 179,071 133,089 181,253 Parker & Parsley Producing Properties 88-A, L.P...... 6,217 7,922 -- -- 362,041 461,335 368,258 469,257 Parker & Parsley Private Investment 88, L.P........ 6,683 7,887 -- -- 661,637 780,792 668,320 788,679 Parker & Parsley 89-A Conv., L.P....................... 1,762 2,851 -- -- 174,412 282,272 176,174 285,123 Parker & Parsley 89-A, L.P....................... 11,786 19,075 -- -- 512,077 828,752 523,863 847,827 Parker & Parsley 89-B Conv., L.P....................... 4,581 6,387 -- -- 344,057 479,732 348,638 486,119 Parker & Parsley 89-B, L.P....................... 7,771 10,837 -- -- 375,814 524,126 383,585 534,963 Parker & Parsley Private Investment 89, L.P........ 6,188 6,426 -- -- 390,232 405,242 396,420 411,668 Parker & Parsley 90-A Conv., L.P....................... 1,803 2,546 -- -- 111,776 157,839 113,579 160,385 Parker & Parsley 90-A, L.P....................... 10,286 14,525 -- -- 317,641 448,546 327,927 463,071 Parker & Parsley 90-B Conv., L.P....................... 10,577 13,469 -- -- 624,406 795,145 634,983 808,614 Parker & Parsley 90-B, L.P....................... 21,654 27,526 -- -- 1,704,172 2,166,318 1,725,826 2,193,844 Parker & Parsley 90-C Conv., L.P....................... 5,264 5,255 -- -- 372,246 371,637 377,510 376,892 Parker & Parsley 90-C, L.P....................... 7,409 7,397 -- -- 599,484 598,503 606,893 605,900 Parker & Parsley Private Investment 90, L.P........ 9,699 9,806 -- -- 619,485 626,306 629,184 636,112 Parker & Parsley 90 Spraberry Private Dev., L.P....................... 3,771 3,374 -- -- 373,324 333,986 377,095 337,360 Parker & Parsley 91-A, L.P....................... 11,694 16,775 -- -- 833,634 1,195,849 845,328 1,212,624 Parker & Parsley 91-B, L.P....................... 10,272 12,121 -- -- 933,817 1,101,978 944,089 1,114,099 --------- --------- ------ ------ ---------- ---------- ---------- ---------- Total............... 1,417,258 2,200,180 44,951 72,961 20,876,036 28,527,964 22,338,245 30,801,105 ========= ========= ====== ====== ========== ========== ========== ==========
A-16 127 --------------- (a) Represents Pioneer USA's partnership interests in each partnership as: (1) the sole or managing general partner of the partnership; (2) a limited partner of the partnership; and (3) the sole general partner of each nonmanaging general partner. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in any participating partnership. However, as a result of the merger of each participating partnership, Pioneer USA will acquire 100% of the properties of the partnership including properties attributable to its partnership interests in the partnerships. (b) Represents four unaffiliated individuals' partnership interests as limited partners of each nonmanaging general partner. Excludes Pioneer USA's partnership interests as general partner of each nonmanaging general partner. (c) Represents the partnership interests of unaffiliated limited partners of each partnership. Excludes Pioneer USA's partnership interests as a limited partner of any partnership. A-17 128 TABLE 13 OIL, NATURAL GAS LIQUIDS AND GAS PRODUCTION FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 AND THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
OIL & NGL (BBLS) GAS (MCF) ----------------------------------------------------- --------------------- FOR THE SIX FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED JUNE 30, DECEMBER 31, JUNE 30, ----------------- --------------------------------- --------------------- 2001 2000 2000 1999 1998 2001 2000 ------- ------- --------- --------- --------- --------- --------- Parker & Parsley 81-I, Ltd. ...................... 6,368 7,036 13,976 14,970 13,937 12,725 12,333 Parker & Parsley 81-II, Ltd. ...................... 5,536 6,953 13,921 13,232 16,033 11,975 6,862 Parker & Parsley 82-I, Ltd. ...................... 11,388 12,155 24,158 23,886 25,898 27,831 23,257 Parker & Parsley 82-II, Ltd. ...................... 10,933 12,604 24,922 27,554 27,854 22,031 18,498 Parker & Parsley 82-III, Ltd. ...................... 8,607 10,544 20,646 20,801 19,540 12,402 11,409 Parker & Parsley 83-A, Ltd. ...................... 29,541 33,151 66,679 69,238 67,612 52,495 46,838 Parker & Parsley 83-B, Ltd. ...................... 33,837 41,940 81,814 89,446 93,695 56,204 70,252 Parker & Parsley 84-A, Ltd. ...................... 38,301 43,066 85,485 85,868 88,702 57,564 68,163 Parker & Parsley 85-A, Ltd. ...................... 11,722 14,037 27,458 31,246 27,808 21,052 21,614 Parker & Parsley 85-B, Ltd. ...................... 9,856 10,065 20,809 21,410 24,803 16,032 14,832 Parker & Parsley Private Investment 85-A, Ltd. ..... 7,651 9,054 17,619 20,664 21,200 7,461 10,079 Parker & Parsley Selected 85 Private Investment, Ltd. ...................... 7,950 7,674 15,698 14,598 15,439 12,602 11,058 Parker & Parsley 86-A, Ltd. ...................... 13,299 15,422 31,785 33,226 31,472 20,166 26,019 Parker & Parsley 86-B, Ltd. ...................... 25,551 30,997 62,337 63,132 70,399 43,243 41,035 Parker & Parsley 86-C, Ltd. ...................... 30,072 33,640 66,329 64,894 74,674 54,393 45,739 Parker & Parsley Private Investment 86, Ltd. ....... 8,782 10,793 20,938 20,843 22,245 17,822 16,606 Parker & Parsley 87-A Conv., Ltd. ...................... 5,843 6,912 13,096 13,578 14,371 10,345 11,375 Parker & Parsley 87-A, Ltd. ...................... 43,647 51,722 97,824 101,441 107,375 77,315 84,978 Parker & Parsley 87-B Conv., Ltd. ...................... 6,390 8,146 16,015 16,758 17,879 8,728 11,701 Parker & Parsley 87-B, Ltd. ...................... 26,099 33,261 65,401 68,433 73,036 35,640 47,808 Parker & Parsley Producing Properties 87-A, Ltd. ..... 24,585 26,669 53,656 53,101 64,367 24,458 22,894 Parker & Parsley Producing Properties 87-B, Ltd. ..... 14,052 17,391 33,115 35,770 40,796 19,481 26,130 Parker & Parsley Private Investment 87, Ltd. ....... 18,141 16,906 35,242 40,495 42,801 25,756 23,896 Parker & Parsley 88-A Conv., L.P........................ 7,026 7,158 14,604 17,052 16,899 14,063 10,700 GAS (MCF) TOTAL (BOE)(A) --------------------------------- ------------------------------------------------------- FOR THE SIX FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31, --------------------------------- ------------------- --------------------------------- 2000 1999 1998 2001 2000 2000 1999 1998 --------- --------- --------- ------- --------- --------- --------- --------- Parker & Parsley 81-I, Ltd. ...................... 25,901 28,708 24,638 8,489 9,092 18,293 19,755 18,043 Parker & Parsley 81-II, Ltd. ...................... 15,864 19,167 22,439 7,532 8,097 16,565 16,427 19,773 Parker & Parsley 82-I, Ltd. ...................... 45,981 48,380 48,971 16,027 16,031 31,822 31,949 34,060 Parker & Parsley 82-II, Ltd. ...................... 35,900 42,858 41,862 14,605 15,687 30,905 34,697 34,831 Parker & Parsley 82-III, Ltd. ...................... 21,480 23,061 17,680 10,674 12,446 24,226 24,645 22,487 Parker & Parsley 83-A, Ltd. ...................... 94,612 109,716 95,156 38,290 40,957 82,448 87,524 83,471 Parker & Parsley 83-B, Ltd. ...................... 132,106 157,842 147,495 43,204 53,649 103,832 115,753 118,278 Parker & Parsley 84-A, Ltd. ...................... 138,617 154,235 145,870 47,895 54,427 108,588 111,574 113,014 Parker & Parsley 85-A, Ltd. ...................... 41,549 55,226 43,021 15,231 17,639 34,383 40,450 34,978 Parker & Parsley 85-B, Ltd. ...................... 30,909 33,467 41,501 12,528 12,537 25,961 26,988 31,720 Parker & Parsley Private Investment 85-A, Ltd. ..... 20,905 23,218 22,343 8,895 10,734 21,103 24,534 24,924 Parker & Parsley Selected 85 Private Investment, Ltd. ...................... 22,987 27,627 25,328 10,050 9,517 19,529 19,203 19,660 Parker & Parsley 86-A, Ltd. ...................... 56,549 62,354 49,805 16,660 19,759 41,210 43,618 39,773 Parker & Parsley 86-B, Ltd. ...................... 79,859 86,726 97,715 32,758 37,836 75,647 77,586 86,685 Parker & Parsley 86-C, Ltd. ...................... 95,610 105,081 129,149 39,138 41,263 82,264 82,408 96,199 Parker & Parsley Private Investment 86, Ltd. ....... 33,570 30,923 33,219 11,752 13,561 26,533 25,997 27,782 Parker & Parsley 87-A Conv., Ltd. ...................... 20,355 24,503 24,025 7,567 8,808 16,489 17,662 18,375 Parker & Parsley 87-A, Ltd. ...................... 152,075 183,099 179,494 56,533 65,885 123,170 131,958 137,291 Parker & Parsley 87-B Conv., Ltd. ...................... 23,682 24,436 25,477 7,845 10,096 19,962 20,831 22,125 Parker & Parsley 87-B, Ltd. ...................... 96,740 99,771 104,072 32,039 41,229 81,524 85,062 90,381 Parker & Parsley Producing Properties 87-A, Ltd. ..... 45,872 53,145 56,240 28,661 30,485 61,301 61,959 73,740 Parker & Parsley Producing Properties 87-B, Ltd. ..... 49,380 48,774 50,220 17,299 21,746 41,345 43,899 49,166 Parker & Parsley Private Investment 87, Ltd. ....... 48,307 52,874 58,036 22,434 20,889 43,293 49,307 52,474 Parker & Parsley 88-A Conv., L.P........................ 21,399 27,417 25,367 9,370 8,941 18,171 21,622 21,127
A-18 129
OIL & NGL (BBLS) GAS (MCF) ----------------------------------------------------- --------------------- FOR THE SIX FOR THE SIX MONTHS ENDED FOR THE YEAR ENDED MONTHS ENDED JUNE 30, DECEMBER 31, JUNE 30, ----------------- --------------------------------- --------------------- 2001 2000 2000 1999 1998 2001 2000 ------- ------- --------- --------- --------- --------- --------- Parker & Parsley 88-A, L.P. ...................... 23,970 24,407 49,808 58,141 57,635 47,966 36,489 Parker & Parsley 88-B Conv., L.P. ...................... 7,743 9,309 18,572 16,986 17,610 8,437 10,843 Parker & Parsley 88-B, L.P. ...................... 19,089 22,934 45,729 41,830 43,365 20,792 26,695 Parker & Parsley 88-C Conv., L.P. ...................... 6,735 7,753 15,453 14,136 14,859 8,160 9,952 Parker & Parsley 88-C, L.P. ...................... 4,792 5,520 11,023 10,071 10,596 5,811 7,086 Parker & Parsley Producing Properties 88-A, L.P. ..... 12,098 13,726 26,976 30,280 34,491 16,169 20,402 Parker & Parsley Private Investment 88, L.P. ....... 19,574 23,313 46,284 48,802 48,933 28,101 30,899 Parker & Parsley 89-A Conv., L.P. ...................... 5,776 6,423 13,092 14,166 14,102 11,172 10,163 Parker & Parsley 89-A, L.P. ...................... 17,189 19,094 38,923 42,129 41,931 33,232 30,228 Parker & Parsley 89-B Conv., L.P. ...................... 12,925 16,104 30,959 32,585 35,481 23,283 21,901 Parker & Parsley 89-B, L.P. ...................... 14,236 17,736 34,089 35,879 39,063 25,638 24,114 Parker & Parsley Private Investment 89, L.P. ....... 14,694 15,219 30,738 30,310 36,741 21,188 13,324 Parker & Parsley 90-A Conv., L.P. ...................... 4,331 4,958 9,876 10,130 11,399 8,155 6,902 Parker & Parsley 90-A, L.P. ...................... 12,493 14,303 28,519 29,248 32,915 23,539 19,897 Parker & Parsley 90-B Conv., L.P. ...................... 23,763 26,562 53,388 53,864 58,543 35,369 33,016 Parker & Parsley 90-B, L.P. ...................... 64,464 72,038 144,804 146,064 158,775 95,918 89,536 Parker & Parsley 90-C Conv., L.P. ...................... 13,982 16,386 32,773 32,618 33,187 17,805 14,092 Parker & Parsley 90-C, L.P. ...................... 22,479 26,332 52,686 52,433 53,358 28,625 22,664 Parker & Parsley Private Investment 90, L.P. ....... 22,587 26,680 52,913 46,335 49,468 29,299 24,989 Parker & Parsley 90 Spraberry Private Dev., L.P. ...................... 10,509 10,715 22,593 20,688 20,835 14,921 9,984 Parker & Parsley 91-A, L.P. ...................... 24,949 32,881 64,129 64,820 70,623 52,227 47,283 Parker & Parsley 91-B, L.P. ...................... 24,152 35,483 69,550 65,056 66,527 28,144 42,828 ------- ------- --------- --------- --------- --------- --------- Total................ 787,707 915,172 1,816,404 1,858,207 1,969,272 1,245,735 1,237,363 ======= ======= ========= ========= ========= ========= ========= GAS (MCF) TOTAL (BOE)(A) --------------------------------- ------------------------------------------------------- FOR THE SIX FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31, --------------------------------- ------------------- --------------------------------- 2000 1999 1998 2001 2000 2000 1999 1998 --------- --------- --------- ------- --------- --------- --------- --------- Parker & Parsley 88-A, L.P. ...................... 72,965 93,498 86,501 31,964 30,489 61,969 73,724 72,052 Parker & Parsley 88-B Conv., L.P. ...................... 21,781 23,221 21,214 9,149 11,116 22,202 20,856 21,146 Parker & Parsley 88-B, L.P. ...................... 53,620 57,190 52,254 22,554 27,383 54,666 51,362 52,074 Parker & Parsley 88-C Conv., L.P. ...................... 19,618 21,119 19,764 8,095 9,412 18,723 17,656 18,153 Parker & Parsley 88-C, L.P. ...................... 13,979 15,049 14,091 5,761 6,701 13,353 12,579 12,945 Parker & Parsley Producing Properties 88-A, L.P. ..... 37,939 44,467 51,099 14,793 17,126 33,299 37,691 43,008 Parker & Parsley Private Investment 88, L.P. ....... 59,532 66,701 61,718 24,258 28,463 56,206 59,919 59,219 Parker & Parsley 89-A Conv., L.P. ...................... 20,057 20,484 21,106 7,638 8,117 16,435 17,580 17,620 Parker & Parsley 89-A, L.P. ...................... 59,638 60,905 62,751 22,728 24,132 48,863 52,280 52,390 Parker & Parsley 89-B Conv., L.P. ...................... 42,179 46,681 52,345 16,806 19,754 37,989 40,365 44,205 Parker & Parsley 89-B, L.P. ...................... 46,454 51,400 57,643 18,509 21,755 41,831 44,446 48,670 Parker & Parsley Private Investment 89, L.P. ....... 30,037 32,985 44,624 18,225 17,440 35,744 35,808 44,178 Parker & Parsley 90-A Conv., L.P. ...................... 13,365 14,989 16,309 5,690 6,108 12,104 12,628 14,117 Parker & Parsley 90-A, L.P. ...................... 38,570 43,302 47,086 16,416 17,619 34,947 36,465 40,763 Parker & Parsley 90-B Conv., L.P. ...................... 64,786 70,803 73,460 29,658 32,065 64,186 65,665 70,786 Parker & Parsley 90-B, L.P. ...................... 175,696 192,016 199,215 80,450 86,961 174,087 178,067 191,978 Parker & Parsley 90-C Conv., L.P. ...................... 30,423 29,399 30,348 16,950 18,735 37,844 37,518 38,245 Parker & Parsley 90-C, L.P. ...................... 48,907 47,265 48,787 27,250 30,109 60,837 60,311 61,489 Parker & Parsley Private Investment 90, L.P. ....... 49,484 47,331 54,218 27,470 30,845 61,160 54,224 58,504 Parker & Parsley 90 Spraberry Private Dev., L.P. ...................... 22,121 19,579 24,095 12,996 12,379 26,280 23,951 24,851 Parker & Parsley 91-A, L.P. ...................... 94,315 100,615 108,617 33,654 40,762 79,848 81,589 88,726 Parker & Parsley 91-B, L.P. ...................... 85,556 74,025 68,244 28,843 42,621 83,809 77,394 77,901 --------- --------- --------- ------- --------- --------- --------- --------- Total................ 2,451,231 2,695,632 2,724,612 995,333 1,121,403 2,224,946 2,307,486 2,423,377 ========= ========= ========= ======= ========= ========= ========= =========
--------------- (a) Gas production is converted to oil equivalents at the rate of six mcf per barrel, representing the relative energy content of natural gas and oil. A-19 130 TABLE 14 PRODUCTIVE WELLS AND DEVELOPED ACREAGE AS OF JUNE 30, 2001
PRODUCTIVE OIL AND GAS WELLS DEVELOPED ACRES ------------------- ----------------- GROSS(A) NET(B) GROSS(A) NET(B) --------- ------- -------- ------ Parker & Parsley 81-I, Ltd. ................................ 16 9.13 2,328 1,250 Parker & Parsley 81-II, Ltd. ............................... 12 8.40 1,563 1,050 Parker & Parsley 82-I, Ltd. ................................ 17 16.19 1,702 1,557 Parker & Parsley 82-II, Ltd. ............................... 16 15.38 1,882 1,489 Parker & Parsley 82-III, Ltd. .............................. 13 11.63 2,013 1,381 Parker & Parsley 83-A, Ltd. ................................ 42 37.59 5,154 3,602 Parker & Parsley 83-B, Ltd. ................................ 41 40.66 5,227 4,190 Parker & Parsley 84-A, Ltd. ................................ 38 37.55 4,929 4,019 Parker & Parsley 85-A, Ltd. ................................ 21 17.05 2,083 1,315 Parker & Parsley 85-B, Ltd. ................................ 17 13.05 2,536 1,215 Parker & Parsley Private Investment 85-A, Ltd. ............. 11 7.78 1,204 658 Parker & Parsley Selected 85 Private Investment, Ltd. ...... 12 9.23 1,282 738 Parker & Parsley 86-A, Ltd. ................................ 26 21.86 1,689 1,108 Parker & Parsley 86-B, Ltd. ................................ 43 35.66 2,709 1,694 Parker & Parsley 86-C, Ltd. ................................ 53 44.36 4,432 2,786 Parker & Parsley Private Investment 86, Ltd. ............... 14 12.37 1,685 1,131 Parker & Parsley 87-A Conv., Ltd. .......................... 71 6.91 6,498 659 Parker & Parsley 87-A, Ltd. ................................ 71 51.65 6,498 4,926 Parker & Parsley 87-B Conv., Ltd. .......................... 47 8.07 4,465 796 Parker & Parsley 87-B, Ltd. ................................ 47 32.98 4,465 3,251 Parker & Parsley Producing Properties 87-A, Ltd. ........... 84 38.05 10,576 3,615 Parker & Parsley Producing Properties 87-B, Ltd. ........... 34 20.29 4,302 1,609 Parker & Parsley Private Investment 87, Ltd. ............... 24 19.65 1,685 1,130 Parker & Parsley 88-A Conv., L.P. .......................... 39 8.01 3,286 592 Parker & Parsley 88-A, L.P. ................................ 39 25.98 3,286 1,628 Parker & Parsley 88-B Conv., L.P. .......................... 40 7.47 2,766 956 Parker & Parsley 88-B, L.P. ................................ 40 18.39 2,766 412 Parker & Parsley 88-C Conv., L.P. .......................... 40 6.84 2,757 343 Parker & Parsley 88-C, L.P. ................................ 40 4.87 2,757 244 Parker & Parsley Producing Properties 88-A, L.P. ........... 22 17.73 1,689 1,193 Parker & Parsley Private Investment 88, L.P. ............... 22 19.18 1,873 1,211 Parker & Parsley 89-A Conv., L.P. .......................... 31 5.69 2,811 553 Parker & Parsley 89-A, L.P. ................................ 31 16.91 2,811 1,645 Parker & Parsley 89-B Conv., L.P. .......................... 33 13.72 2,992 1,150 Parker & Parsley 89-B, L.P. ................................ 33 15.12 2,992 1,267 Parker & Parsley Private Investment 89, L.P. ............... 19 13.87 1,913 1,253 Parker & Parsley 90-A Conv., L.P. .......................... 25 4.56 2,045 395 Parker & Parsley 90-A, L.P. ................................ 25 13.17 2,045 1,141 Parker & Parsley 90-B Conv., L.P. .......................... 102 22.88 9,729 2,086 Parker & Parsley 90-B, L.P. ................................ 102 62.05 9,729 5,658 Parker & Parsley 90-C Conv., L.P. .......................... 42 13.68 1,021 316 Parker & Parsley 90-C, L.P. ................................ 42 21.99 1,021 509 Parker & Parsley Private Investment 90, L.P. ............... 27 20.65 2,333 1,556 Parker & Parsley 90 Spraberry Private Dev., L.P. ........... 12 9.00 1,017 658 Parker & Parsley 91-A, L.P. ................................ 47 24.71 4,389 1,891 Parker & Parsley 91-B, L.P. ................................ 29 21.97 1,922 1,301 ----- ------ ------- ------ Total............................................. 1,652 903.93 150,857 73,127 ===== ====== ======= ======
--------------- (a) A "gross well" or "gross acre" is a well or an acre in which a working interest is owned. The number of gross wells or acres represents the sum of the wells or acres in which a working interest is owned. (b) A "net well" or "net acre" is deemed to exist when the sum of the fractional working interests in gross wells or acres equals one. The number of net wells or acres is the sum of the fractional working interests in gross wells or acres. A-20 131 TABLE 15 RECENT TRADES OF PARTNERSHIP INTERESTS(a) PER $1,000 INVESTMENT FOR THE SEVEN MONTHS ENDED JULY 31, 2001 AND THE YEARS ENDED DECEMBER 31, 2000 AND 1999
PER $1,000 INVESTMENT -------------------------------------------------------------------------------- FOR THE SEVEN MONTHS ENDED JULY 31, 2001 FOR THE YEAR ENDED DECEMBER 31, 2000 ---------------------------------------- ------------------------------------- SALES PRICE SALES PRICE ------------------ NUMBER NUMBER ----------------- NUMBER NUMBER HIGH LOW OF SALES SOLD HIGH LOW OF SALES SOLD ------- ------- -------- ------ ------- ------- -------- ------ Parker & Parsley 82-I, Ltd. ....... $ -- $ -- -- -- $ 47.75 $ 37.50 5 61 Parker & Parsley 82-II, Ltd. ...... 110.00 75.00 3 30 89.00 45.00 6 60 Parker & Parsley 83-A, Ltd. ....... 120.00 100.00 4 65 112.50 94.00 6 60 Parker & Parsley 83-B, Ltd. ....... 137.00 85.00 3 25 135.00 96.11 5 105 Parker & Parsley 84-A, Ltd. ....... 200.00 143.56 4 90 165.00 101.11 8 175 Parker & Parsley 85-A, Ltd. ....... -- -- -- -- -- -- -- -- Parker & Parsley 85-B, Ltd. ....... 145.00 145.00 1 10 135.00 100.00 4 35 Parker & Parsley 86-A, Ltd. ....... 140.00 125.00 3 20 160.00 65.00 4 45 Parker & Parsley 86-B, Ltd. ....... 165.00 165.00 1 5 160.00 97.00 8 120 Parker & Parsley 86-C, Ltd. ....... 147.66 92.00 5 31 135.00 95.45 4 40 Parker & Parsley 87-A, Ltd. ....... 163.75 145.00 6 177 163.75 78.00 12 128 Parker & Parsley 87-B, Ltd. ....... 191.50 157.20 3 35 179.25 105.66 14 255 Parker & Parsley Producing Properties 87-A, Ltd. ............ 280.00 280.00 1 20 280.00 184.00 2 12 Parker & Parsley Producing Properties 87-B, Ltd. ............ 138.00 138.00 1 4 310.00 146.00 3 47 Parker & Parsley 88-A, L.P. ....... 210.00 186.00 3 35 205.00 135.00 6 43 Parker & Parsley 88-B, L.P. ....... -- -- -- -- 188.12 128.00 3 230 Parker & Parsley 88-C, L.P. ....... 250.00 250.00 2 90 175.00 138.20 4 17 Parker & Parsley Producing Properties 88-A, L.P. ............ -- -- -- -- -- -- -- -- Parker & Parsley 89-A, L.P. ....... 241.00 215.00 3 45 221.00 140.00 7 100 Parker & Parsley 89-B, L.P. ....... -- -- -- -- 215.00 215.00 1 5 Parker & Parsley 90-A, L.P. ....... 185.00 183.00 2 35 230.00 126.11 3 35 Parker & Parsley 90-B, L.P. ....... 260.00 211.12 8 85 211.12 100.00 19 275 Parker & Parsley 90-C, L.P. ....... 225.00 112.30 4 50 210.00 112.30 12 251 Parker & Parsley 91-A, L.P. ....... 320.00 275.00 2 20 259.00 212.00 2 22 Parker & Parsley 91-B, L.P. ....... 330.44 300.00 4 30 235.11 235.11 1 10 PER $1,000 INVESTMENT ------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 1999 ------------------------------------- SALES PRICE ----------------- NUMBER NUMBER HIGH LOW OF SALES SOLD ------- ------- -------- ------ Parker & Parsley 82-I, Ltd. ....... $ 15.00 $ 4.17 2 24 Parker & Parsley 82-II, Ltd. ...... 30.83 10.50 3 41 Parker & Parsley 83-A, Ltd. ....... 54.00 36.75 10 151 Parker & Parsley 83-B, Ltd. ....... 63.11 43.00 2 35 Parker & Parsley 84-A, Ltd. ....... 72.00 44.00 8 104 Parker & Parsley 85-A, Ltd. ....... 61.00 10.00 5 50 Parker & Parsley 85-B, Ltd. ....... 75.00 75.00 2 30 Parker & Parsley 86-A, Ltd. ....... 55.00 10.00 2 40 Parker & Parsley 86-B, Ltd. ....... 111.00 62.34 9 108 Parker & Parsley 86-C, Ltd. ....... 80.00 45.00 5 32 Parker & Parsley 87-A, Ltd. ....... 112.00 65.00 10 155 Parker & Parsley 87-B, Ltd. ....... 101.67 10.00 12 205 Parker & Parsley Producing Properties 87-A, Ltd. ............ 175.00 112.00 4 79 Parker & Parsley Producing Properties 87-B, Ltd. ............ 170.00 128.00 3 30 Parker & Parsley 88-A, L.P. ....... 105.11 57.00 3 25 Parker & Parsley 88-B, L.P. ....... 111.00 62.00 4 50 Parker & Parsley 88-C, L.P. ....... 56.00 56.00 1 25 Parker & Parsley Producing Properties 88-A, L.P. ............ 225.00 225.00 1 4 Parker & Parsley 89-A, L.P. ....... 138.00 86.00 5 70 Parker & Parsley 89-B, L.P. ....... 146.11 105.00 5 85 Parker & Parsley 90-A, L.P. ....... 92.00 84.33 2 25 Parker & Parsley 90-B, L.P. ....... 175.00 90.00 12 115 Parker & Parsley 90-C, L.P. ....... 136.33 60.51 8 125 Parker & Parsley 91-A, L.P. ....... 121.00 88.00 2 13 Parker & Parsley 91-B, L.P. ....... 135.00 135.00 1 10
--------------- (a) This table contains historical information about recent trades of partnership interests on a per $1,000 investment as determined from "The Partnership Spectrum." The price information represents the prices reported to have been paid to the sellers net of commissions paid by buyers. This information should not be relied upon as any indication of the price at which the partnership interests may trade. There may have been other secondary sale transactions in the partnership interests, although no information regarding any such transactions is available to Pioneer USA. Because the information regarding sale transactions in the partnership interests in this table is provided without verification by Pioneer USA and because the information provided does not reflect sufficient activity to cause the prices shown to be representative of the market values of the partnership interests, the information should not be relied upon as indicative of the ability of limited partners to sell their partnership interests in secondary sale transactions or as to the prices at which the partnership interests may be sold. A-21 132 TABLE 16 RESERVE VALUE ATTRIBUTABLE TO PIONEER USA, NONMANAGING GENERAL PARTNERS AND LIMITED PARTNERS AS OF MARCH 31, 2001
TOTAL RESERVE VALUE(A) ---------------------------------------------------------- NONMANAGING GENERAL LIMITED PIONEER USA(B) PARTNERS(C) PARTNERS(D) TOTAL -------------- ----------- ------------ ------------ Parker & Parsley 81-I, Ltd. ................................ $ 242,920 $ 17,609 $ 652,136 $ 912,665 Parker & Parsley 81-II, Ltd. ............................... 165,833 6,793 511,151 683,777 Parker & Parsley 82-I, Ltd. ................................ 419,236 14,382 859,821 1,293,439 Parker & Parsley 82-II, Ltd. ............................... 439,725 13,485 1,175,037 1,628,247 Parker & Parsley 82-III, Ltd. .............................. 312,876 10,249 785,095 1,108,220 Parker & Parsley 83-A, Ltd. ................................ 968,805 37,688 2,582,800 3,589,293 Parker & Parsley 83-B, Ltd. ................................ 1,312,532 50,316 3,429,109 4,791,957 Parker & Parsley 84-A, Ltd. ................................ 1,324,574 56,580 3,648,163 5,029,317 Parker & Parsley 85-A, Ltd. ................................ 37,920 -- 1,258,113 1,296,033 Parker & Parsley 85-B, Ltd. ................................ 19,444 -- 1,111,813 1,131,257 Parker & Parsley Private Investment 85-A, Ltd. ............. 47,329 -- 1,354,588 1,401,917 Parker & Parsley Selected 85 Private Investment, Ltd. ...... 28,421 -- 1,028,644 1,057,065 Parker & Parsley 86-A, Ltd. ................................ 23,635 -- 1,737,540 1,761,175 Parker & Parsley 86-B, Ltd. ................................ 67,810 -- 3,837,419 3,905,229 Parker & Parsley 86-C, Ltd. ................................ 41,159 -- 3,106,759 3,147,918 Parker & Parsley Private Investment 86, Ltd. ............... 13,277 -- 1,314,449 1,327,726 Parker & Parsley 87-A Conv., Ltd. .......................... 14,400 -- 744,066 758,466 Parker & Parsley 87-A, Ltd. ................................ 90,315 -- 5,549,685 5,640,000 Parker & Parsley 87-B Conv., Ltd. .......................... 11,952 -- 982,983 994,935 Parker & Parsley 87-B, Ltd. ................................ 49,644 -- 4,013,628 4,063,272 Parker & Parsley Producing Properties 87-A, Ltd. ........... 34,029 -- 2,489,324 2,523,353 Parker & Parsley Producing Properties 87-B, Ltd. ........... 61,008 -- 2,292,983 2,353,991 Parker & Parsley Private Investment 87, Ltd. ............... 26,380 -- 2,611,622 2,638,002 Parker & Parsley 88-A Conv., L.P............................ 21,158 -- 896,741 917,899 Parker & Parsley 88-A, L.P.................................. 72,749 -- 3,057,497 3,130,246 Parker & Parsley 88-B Conv., L.P............................ 18,992 -- 1,210,615 1,229,607 Parker & Parsley 88-B, L.P.................................. 61,751 -- 2,966,274 3,028,025 Parker & Parsley 88-C Conv., L.P............................ 12,731 -- 973,954 986,685 Parker & Parsley 88-C, L.P.................................. 8,464 -- 694,740 703,204 Parker & Parsley Producing Properties 88-A, L.P............. 32,226 -- 1,876,770 1,908,996 Parker & Parsley Private Investment 88, L.P................. 34,783 -- 3,443,488 3,478,271 Parker & Parsley 89-A Conv., L.P............................ 9,187 -- 909,542 918,729 Parker & Parsley 89-A, L.P.................................. 61,463 -- 2,670,421 2,731,884 Parker & Parsley 89-B Conv., L.P............................ 22,869 -- 1,717,590 1,740,459 Parker & Parsley 89-B, L.P.................................. 38,779 -- 1,875,515 1,914,294 Parker & Parsley Private Investment 89, L.P................. 31,264 -- 1,971,695 2,002,959 Parker & Parsley 90-A Conv., L.P............................ 9,146 -- 566,974 576,120 Parker & Parsley 90-A, L.P.................................. 52,176 -- 1,611,222 1,663,398 Parker & Parsley 90-B Conv., L.P............................ 54,385 -- 3,210,575 3,264,960 Parker & Parsley 90-B, L.P.................................. 111,242 -- 8,754,945 8,866,187 Parker & Parsley 90-C Conv., L.P............................ 25,876 -- 1,829,876 1,855,752 Parker & Parsley 90-C, L.P.................................. 36,420 -- 2,946,927 2,983,347 Parker & Parsley Private Investment 90, L.P................. 52,185 -- 3,333,202 3,385,387 Parker & Parsley 90 Spraberry Private Dev., L.P............. 16,361 -- 1,619,709 1,636,070 Parker & Parsley 91-A, L.P.................................. 65,448 -- 4,665,509 4,730,957 Parker & Parsley 91-B, L.P.................................. 54,570 -- 4,961,039 5,015,609 ---------- -------- ------------ ------------ Total............................................... $6,657,449 $207,102 $104,841,748 $111,706,299 ========== ======== ============ ============
--------------- (a) The reserve value is one of the components of the merger value for each partnership and represents the present value of estimated future net revenues from the partnership's estimated oil and gas reserves as of March 31, 2001. The present value was calculated using: (1) a five-year New York Mercantile Exchange, or NYMEX, futures price for oil and gas as of March 31, 2001 with prices held constant after year five at the year five price, less standard industry adjustments, (2) historical operating costs adjusted only for those items affected by commodity prices, such as production taxes and ad valorem taxes, and (3) a 10.0% discount rate. For 2001, the oil and gas prices were based on the average NYMEX futures price for the nine-month period beginning on April 1, 2001 and ending December 31, 2001. (b) Represents Pioneer USA's partnership interests in each partnership as: (1) the sole or managing general partner of the partnership; (2) a limited partner of the partnership; and (3) the sole general partner of each nonmanaging general partner. Pioneer USA will not receive any Pioneer Parent common stock for its partnership interests in any participating partnership. However, as a result of the merger of each participating partnership, Pioneer USA will acquire 100% of the properties of the partnership including properties attributable to its partnership interests in the partnerships. (c) Represents four unaffiliated individuals' partnership interests as limited partners of each nonmanaging general partner. Excludes Pioneer USA's partnership interests as general partner of each nonmanaging general partner. (d) Represents the partnership interests of unaffiliated limited partners of each partnership. Excludes Pioneer USA's partnership interests as a limited partner of any partnership. A-22 133 APPENDIX B TO PROXY STATEMENT/PROSPECTUS August 17, 2001 Pioneer Natural Resources USA, Inc. 5205 North O'Connor Boulevard, Suite 1400 Irving, Texas 75039 Attention Board of Directors Gentlemen: Subject: Summary Letter Including 46 Reports of Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners or the Converted Limited Partners in Various Parker & Parsley Partnerships Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859 In accordance with your request, Williamson Petroleum Consultants, Inc. (Williamson) has prepared this summary letter for inclusion in the proxy statement to be distributed to the limited partners of the referenced Partnerships by Pioneer Natural Resources USA, Inc. (Pioneer USA). This letter includes the results from 46 review letters prepared for Pioneer USA to the interests of the Limited Partners or the Converted Limited Partners in various Parker & Parsley Partnerships managed by Pioneer USA effective March 31, 2001. A listing of the 46 Williamson review letters is included as Exhibit I. I. DEFINITIONS OF OIL AND GAS RESERVES The estimated reserves presented in this summary letter are net proved reserves, including proved developed producing, proved developed nonproducing, and proved undeveloped reserves. In preparing these evaluations, no attempt has been made to quantify the element of uncertainty associated with any category. Reserves were assigned to each category as warranted. Proved Oil and Gas Reserves Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Prices and costs include consideration of changes provided by contractual arrangements and may include escalations based upon an estimate of future conditions. A. Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes: 1. that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and 2. the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. B. Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the "proved" classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based. B-1 134 PIONEER NATURAL RESOURCES USA, INC. BOARD OF DIRECTORS AUGUST 17, 2001 PAGE 2 C. Estimates of proved reserves do not include the following: 1. oil that may become available from known reservoirs but is classified separately as "indicated additional reserves"; 2. crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; 3. crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and 4. crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite, and other such sources. Proved Developed Oil and Gas Reserves(1) Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. Proved Undeveloped Reserves Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates, for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. II. DISCUSSION OF THE REVIEW In performing the review, Williamson conducted an evaluation of the methods and procedures utilized by Pioneer USA in the preparation of the estimates of reserves and associated future net revenue and performed tests and procedures considered necessary to render the opinions set forth herein. Williamson evaluated the properties in 46 Parker & Parsley Partnerships as of December 31, 2000 and the results of that evaluation were transmitted in 46 individual reports (the SEC Reports) dated February 20, 2001. Williamson also prepared a Summary Letter Report including the SEC Reports for inclusion in a Registration Statement on Form S-4 under the Securities Act of 1933 to be filed with the SEC. Pioneer USA prepared reports on each partnership using the SEC Reports as the bases. Pioneer USA rolled forward the Williamson oil and gas projections from the SEC Reports to March 31, 2001, applied different pricing, added three proved undeveloped locations, and made ownership interest changes on some wells. (Most of the changes were due to payout reversions that had occurred prior to March 31, 2001.) Pioneer USA represented that no Williamson reserves projections were altered and no changes were made to the lease operating expenses, production taxes, or ownership interests (except as noted above). The Pioneer USA evaluations resulted in oil, natural gas liquids (NGL), and gas combined total net reserves of 13,882.872 MBBL, 7,008.607 MBBL, and 28,430.649 MMCF with a combined total future net revenue discounted at 10.0 percent (DFNR) of M$104,150.210. --------------- (1) Williamson Petroleum Consultants, Inc. separates proved developed reserves into proved developed producing and proved developed nonproducing reserves. This is to identify proved developed producing reserves as those to be recovered from actively producing wells; proved developed nonproducing reserves as those to be recovered from wells or intervals within wells, which are completed but shut in waiting on equipment or pipeline connections, or wells where a relatively minor expenditure is required for recompletion to another zone. B-2 135 PIONEER NATURAL RESOURCES USA, INC. BOARD OF DIRECTORS AUGUST 17, 2001 PAGE 3 Pioneer USA updated the production generally through April 2001 and transmitted these March 31, 2001 roll-forward reports in the form of an Aries database to Williamson for review. Williamson has reviewed the Pioneer USA database and has determined that no changes have been made to the database except for the effective date; oil, gas, and NGL prices; the addition of three proved undeveloped locations; and the ownership interest changes noted above. In reviewing the roll forward oil and gas reserves projections with the added six months of production for the months of November 2000 through April 2001, Williamson recommended and made changes to the oil and/or gas projections of certain wells as required. These reserves changes resulted in a change to the Pioneer USA combined total DFNR of M$1,870.163 or 1.8 percent of the combined total DFNR. The change to the Pioneer USA DFNR for the individual partnerships ranged from 16.4 percent to a negative 11.1 percent. Based on our review, it is the opinion of Williamson that the estimates of the reviewed oil and gas reserves and associated future net revenue prepared by Pioneer USA effective March 31, 2001 are reasonable in the aggregate and were prepared in accordance with generally accepted petroleum engineering and evaluation principles as set forth in "Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information" promulgated by the Society of Petroleum Engineers. Exhibits II, III, and IV detail the Pioneer USA oil, NGL, and gas net reserves and associated future net revenue, undiscounted and discounted for each Partnership for the Total Proved, Total Proved Developed, and Total Proved Undeveloped, respectively, from the Williamson review letters. III. CONSENT AND DECLARATION OF INDEPENDENT STATUS We understand that the estimates prepared by Pioneer USA and reviewed by Williamson are to be included in the proxy statement/prospectus filed by you with the SEC under the Securities Act of 1933. We understand further that the estimates may be used by you to establish merger values for the Partnerships. With this understanding in mind, it is our opinion that the estimates of reserves and associated future net revenue prepared by Pioneer USA and reviewed by us are reasonable in the aggregate and were prepared in accordance with generally accepted petroleum engineering and evaluation principles in estimating the proved oil and gas reserves and in computing the future net revenue derived from such reserves for each property attributable to the interests held by the Partnerships. Williamson is an independent consulting firm and does not own any interests in the oil and gas properties covered by this summary letter. No employee, officer, or director of Williamson is an employee, officer, or director of Pioneer USA or any of the subject Partnerships. Neither the employment of nor the compensation received by Williamson is contingent upon the values assigned to the properties covered by this summary letter. Yours very truly, WILLIAMSON PETROLEUM CONSULTANTS, INC. /s/ JOHN D. SAVAGE ------------------------------------------ John D. Savage, P.E. Senior Vice President JDS/chk Enclosures B-3 136 EXHIBIT I SUMMARY LETTER INCLUDING 46 REPORTS OF REVIEW OF ESTIMATES PREPARED BY PIONEER NATURAL RESOURCES USA, INC. OF OIL AND GAS RESERVES AND ASSOCIATED FUTURE NET REVENUE TO THE INTERESTS OF THE LIMITED PARTNERS OR THE CONVERTED LIMITED PARTNERS IN VARIOUS PARKER & PARSLEY PARTNERSHIPS MANAGED BY PIONEER NATURAL RESOURCES USA, INC. EFFECTIVE MARCH 31, 2001 WILLIAMSON PROJECT 1.8859 LIST OF WILLIAMSON PETROLEUM CONSULTANTS, INC. REVIEW LETTERS EFFECTIVE MARCH 31, 2001 "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 81-I, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 81-II, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 82-I, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 82-II, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 82-III, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 83-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 83-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 84-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 85-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 85-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Private Investment 85-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" B-4 137 "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Selected 85 Private Investment, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 86-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 86-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 86-C, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Private Investment 86, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 87-A Converted, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 87-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 87-B Converted, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 87-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Producing Properties 87-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Producing Properties 87-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Private Investment 87, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 88-A Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 88-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 88-B Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 88-B, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" B-5 138 "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 88-C Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 88-C, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Producing Properties 88-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Private Investment 88, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 89-A Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 89-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 89-B Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 89-B, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Private Investment 89, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 90-A Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 90-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 90-B Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 90-B, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Converted Limited Partners in Parker & Parsley 90-C Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 90-C L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley Private Investment 90, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" B-6 139 "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 90 Spraberry Private Development, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 91-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" "Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners in Parker & Parsley 91-B, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective March 31, 2001 Williamson Project 1.8859" B-7 140 EXHIBIT II SUMMARY LETTER INCLUDING 46 REPORTS OF REVIEW OF ESTIMATES PREPARED BY PIONEER NATURAL RESOURCES USA, INC. OF OIL AND GAS RESERVES AND ASSOCIATED FUTURE NET REVENUE TO THE INTERESTS OF THE LIMITED PARTNERS OR THE CONVERTED LIMITED PARTNERS IN VARIOUS PARKER & PARSLEY PARTNERSHIPS MANAGED BY PIONEER NATURAL RESOURCES USA, INC. EFFECTIVE MARCH 31, 2001 WILLIAMSON PROJECT 1.8859 NET RESERVES AND FUTURE NET REVENUE FROM REVIEW LETTERS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC. EFFECTIVE MARCH 31, 2001
TOTAL PROVED ---------------------------------------------------------------------- NET RESERVES TO FUTURE NET REVENUE, M$ THE EVALUATED INTERESTS ---------------------------- --------------------------------------- DISCOUNTED OIL/CONDENSATE LIQUID GAS PER ANNUM AT PIONEER FUNDS (Mbbl) (Mbbl) (MMcf) UNDISCOUNTED 10.00 PERCENT ------------- -------------- --------- ---------- ------------ ------------- Parker & Parsley 81-I, Ltd. ................. 82.264 48.823 259.480 1,168.899 684.499 Parker & Parsley 81-II, Ltd. ................ 66.975 50.694 168.235 782.647 512.833 Parker & Parsley 82-I, Ltd. ................. 142.135 54.037 429.393 1,407.714 970.079 Parker & Parsley 82-II, Ltd. ................ 163.217 76.783 361.269 2,101.905 1,221.185 Parker & Parsley 82-III, Ltd. ............... 131.569 55.082 181.031 1,334.954 831.165 Parker & Parsley 83-A, Ltd. ................. 382.712 225.243 908.023 4,375.619 2,691.969 Parker & Parsley 83-B, Ltd. ................. 510.986 286.392 1,275.147 5,832.096 3,593.967 Parker & Parsley 84-A, Ltd. ................. 497.742 336.241 1,399.838 6,282.321 3,771.987 Parker & Parsley 85-A, Ltd. ................. 175.139 97.215 377.073 2,016.968 1,283.072 Parker & Parsley 85-B, Ltd. ................. 149.887 74.437 330.848 1,864.301 1,119.945 Parker & Parsley Private Investment 85-A, Ltd. ...................................... 188.458 81.166 294.019 2,623.316 1,387.898 Parker & Parsley Selected 85 Private Investment, Ltd. .......................... 120.690 85.403 341.876 1,860.766 1,046.495 Parker & Parsley 86-A, Ltd. ................. 198.546 153.319 665.073 2,928.655 1,743.564 Parker & Parsley 86-B, Ltd. ................. 504.170 254.744 1,007.115 6,660.474 3,866.176 Parker & Parsley 86-C, Ltd. ................. 423.341 250.863 957.303 4,853.152 3,116.439 Parker & Parsley Private Investment 86, Ltd. ...................................... 165.771 82.994 442.678 2,210.650 1,314.449 Parker & Parsley 87-A Conv., Ltd. ........... 93.912 52.654 224.443 1,286.337 750.882 Parker & Parsley 87-A , Ltd. ................ 693.991 388.276 1,654.968 9,514.063 5,583.600 Parker & Parsley 87-B Conv., Ltd. ........... 129.176 72.879 299.274 1,764.667 984.985 Parker & Parsley 87-B, Ltd. ................. 527.576 297.649 1,222.273 7,206.843 4,022.639 Parker & Parsley Producing Properties 87-A, Ltd. ...................................... 426.729 120.298 543.992 4,255.595 2,498.119 Parker & Parsley Producing Properties 87-B, Ltd. ...................................... 285.023 156.821 715.733 4,292.846 2,330.451 Parker & Parsley Private Investment 87, Ltd. ...................................... 329.654 162.827 668.737 4,520.573 2,611.622 Parker & Parsley 88-A Conv., L.P. ........... 116.016 65.640 253.729 1,588.020 908.720 Parker & Parsley 88-A, L.P. ................. 395.642 223.849 865.274 5,415.513 3,098.944 Parker & Parsley 88-B Conv., L.P. ........... 158.995 70.283 290.380 2,184.678 1,217.311 Parker & Parsley 88-B, L.P. ................. 391.541 173.080 715.088 5,379.979 2,997.745 Parker & Parsley 88-C Conv., L.P. ........... 123.832 61.040 251.777 1,736.724 976.818 Parker & Parsley 88-C, L.P. ................. 88.255 43.503 179.440 1,237.753 696.172
B-8 141
TOTAL PROVED ---------------------------------------------------------------------- NET RESERVES TO FUTURE NET REVENUE, M$ THE EVALUATED INTERESTS ---------------------------- --------------------------------------- DISCOUNTED OIL/CONDENSATE LIQUID GAS PER ANNUM AT PIONEER FUNDS (Mbbl) (Mbbl) (MMcf) UNDISCOUNTED 10.00 PERCENT ------------- -------------- --------- ---------- ------------ ------------- Parker & Parsley Producing Properties 88-A, L.P. ...................................... 238.804 125.771 464.564 3,419.956 1,889.906 Parker & Parsley Private Investment 88, L.P. ...................................... 445.262 216.375 780.792 6,679.722 3,443.488 Parker & Parsley 89-A Conv., L.P. ........... 114.139 60.273 282.272 1,675.614 909.543 Parker & Parsley 89-A, L.P. ................. 339.398 179.226 839.349 4,982.510 2,704.565 Parker & Parsley 89-B Conv., L.P. ........... 216.989 128.163 481.258 2,973.068 1,723.053 Parker & Parsley 89-B, L.P. ................. 238.716 141.033 529.613 3,267.544 1,895.151 Parker & Parsley Private Investment 89, L.P. ...................................... 277.797 114.659 407.551 3,641.708 1,982.930 Parker & Parsley 90-A Conv., L.P. ........... 71.070 41.373 158.781 976.631 570.359 Parker & Parsley 90-A, L.P. ................. 205.195 119.453 458.440 2,819.768 1,646.764 Parker & Parsley 90-B Conv., L.P. ........... 423.611 205.022 800.528 5,584.044 3,232.310 Parker & Parsley 90-B, L.P. ................. 1,152.236 556.331 2,171.905 15,178.700 8,777.527 Parker & Parsley 90-C Conv., L.P. ........... 262.671 111.064 373.123 3,110.983 1,837.195 Parker & Parsley 90-C, L.P. ................. 422.275 178.549 599.841 5,001.285 2,953.514 Parker & Parsley Private Investment 90, L.P. ...................................... 439.460 183.432 629.750 6,034.439 3,351.532 Parker & Parsley 90 Spraberry Private Development, L.P. ......................... 283.243 90.081 333.986 3,245.033 1,619.709 Parker & Parsley 91-A, L.P. ................. 575.176 261.699 1,200.498 9,122.714 4,683.646 Parker & Parsley 91-B, L.P. ................. 652.384 282.264 1,102.958 9,313.127 4,965.453 ---------- --------- ---------- ----------- ----------- Total All Partnerships....................... 14,022.368 7,097.003 28,898.717 185,714.874 106,020.373
B-9 142 EXHIBIT III SUMMARY LETTER INCLUDING 46 REPORTS OF REVIEW OF ESTIMATES PREPARED BY PIONEER NATURAL RESOURCES USA, INC. OF OIL AND GAS RESERVES AND ASSOCIATED FUTURE NET REVENUE TO THE INTERESTS OF THE LIMITED PARTNERS OR THE CONVERTED LIMITED PARTNERS IN VARIOUS PARKER & PARSLEY PARTNERSHIPS MANAGED BY PIONEER NATURAL RESOURCES USA, INC. EFFECTIVE MARCH 31, 2001 WILLIAMSON PROJECT 1.8859 NET RESERVES AND FUTURE NET REVENUE FROM REVIEW LETTERS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC. EFFECTIVE MARCH 31, 2001
TOTAL PROVED DEVELOPED* ---------------------------------------------------------------------- NET RESERVES TO FUTURE NET REVENUE, M$ THE EVALUATED INTERESTS ---------------------------- --------------------------------------- DISCOUNTED OIL/CONDENSATE LIQUID GAS PER ANNUM AT (Mbbl) (Mbbl) (MMcf) UNDISCOUNTED 10.00 PERCENT -------------- --------- ---------- ------------ ------------- Parker & Parsley 81-I, Ltd. ...................... 82.264 48.823 259.480 1,168.899 684.499 Parker & Parsley 81-II, Ltd. ..................... 66.975 50.694 168.235 782.647 512.833 Parker & Parsley 82-I, Ltd. ...................... 142.135 54.037 429.393 1,407.714 970.079 Parker & Parsley 82-II, Ltd. ..................... 163.217 76.783 361.269 2,101.905 1,221.185 Parker & Parsley 82-III, Ltd. .................... 131.569 55.082 181.031 1,334.954 831.165 Parker & Parsley 83-A, Ltd. ...................... 382.712 225.243 908.023 4,375.619 2,691.969 Parker & Parsley 83-B, Ltd. ...................... 510.986 286.392 1,275.147 5,832.096 3,593.967 Parker & Parsley 84-A, Ltd. ...................... 497.742 336.241 1,399.838 6,282.321 3,771.987 Parker & Parsley 85-A, Ltd. ...................... 175.139 97.215 377.073 2,016.968 1,283.072 Parker & Parsley 85-B, Ltd. ...................... 149.887 74.437 330.848 1,864.301 1,119.945 Parker & Parsley Private Investment 85-A, Ltd. ... 188.458 81.166 294.019 2,623.316 1,387.898 Parker & Parsley Selected 85 Private Investment, Ltd. ........................................... 120.690 85.403 341.876 1,860.766 1,046.495 Parker & Parsley 86-A, Ltd. ...................... 198.546 153.319 665.073 2,928.655 1,743.564 Parker & Parsley 86-B, Ltd. ...................... 504.170 254.744 1,007.115 6,660.474 3,866.176 Parker & Parsley 86-C, Ltd. ...................... 423.341 250.863 957.303 4,853.152 3,116.439 Parker & Parsley Private Investment 86, Ltd. ..... 165.771 82.994 442.678 2,210.650 1,314.449 Parker & Parsley 87-A Conv., Ltd. ................ 93.912 52.654 224.443 1,286.337 750.882 Parker & Parsley 87-A, Ltd. ...................... 693.991 388.276 1,654.968 9,514.063 5,583.600 Parker & Parsley 87-B Conv., Ltd. ................ 129.176 72.879 299.274 1,764.667 984.985 Parker & Parsley 87-B, Ltd. ...................... 527.576 297.649 1,222.273 7,206.843 4,022.639 Parker & Parsley Producing Properties 87-A, Ltd. ........................................... 426.729 120.298 543.992 4,255.595 2,498.119 Parker & Parsley Producing Properties 87-B, Ltd. ........................................... 285.023 156.821 715.733 4,292.846 2,330.451 Parker & Parsley Private Investment 87, Ltd. ..... 329.654 162.827 668.737 4,520.573 2,611.622 Parker & Parsley 88-A Conv., L.P. ................ 116.016 65.640 253.729 1,588.020 908.720 Parker & Parsley 88-A, L.P. ...................... 395.642 223.849 865.274 5,415.513 3,098.944 Parker & Parsley 88-B Conv., L.P. ................ 158.995 70.283 290.380 2,184.678 1,217.311 Parker & Parsley 88-B, L.P. ...................... 391.541 173.080 715.088 5,379.979 2,997.745 Parker & Parsley 88-C Conv., L.P. ................ 123.832 61.040 251.777 1,736.724 976.818 Parker & Parsley 88-C, L.P. ...................... 88.255 43.503 179.440 1,237.753 696.172 Parker & Parsley Producing Properties 88-A, L.P. ........................................... 238.804 125.771 464.564 3,419.956 1,889.906 Parker & Parsley Private Investment 88, L.P. ..... 445.262 216.375 780.792 6,679.722 3,443.488 Parker & Parsley 89-A Conv., L.P. ................ 113.312 54.143 239.845 1,586.078 882.170 Parker & Parsley 89-A, L.P. ...................... 336.937 160.997 713.189 4,716.271 2,623.171
B-10 143
TOTAL PROVED DEVELOPED* ---------------------------------------------------------------------- NET RESERVES TO FUTURE NET REVENUE, M$ THE EVALUATED INTERESTS ---------------------------- --------------------------------------- DISCOUNTED OIL/CONDENSATE LIQUID GAS PER ANNUM AT (Mbbl) (Mbbl) (MMcf) UNDISCOUNTED 10.00 PERCENT -------------- --------- ---------- ------------ ------------- Parker & Parsley 89-B Conv., L.P. ................ 216.989 128.163 481.258 2,973.068 1,723.053 Parker & Parsley 89-B, L.P. ...................... 238.716 141.033 529.613 3,267.544 1,895.151 Parker & Parsley Private Investment 89, L.P. ..... 277.797 114.659 407.551 3,641.708 1,982.930 Parker & Parsley 90-A Conv., L.P. ................ 70.688 38.547 139.220 931.124 555.580 Parker & Parsley 90-A, L.P. ...................... 204.093 111.295 401.961 2,688.377 1,604.091 Parker & Parsley 90-B Conv., L.P. ................ 423.611 205.022 800.528 5,584.044 3,232.310 Parker & Parsley 90-B, L.P. ...................... 1,152.236 556.331 2,171.905 15,178.700 8,777.527 Parker & Parsley 90-C Conv., L.P. ................ 262.671 111.064 373.123 3,110.983 1,837.195 Parker & Parsley 90-C, L.P. ...................... 422.275 178.549 599.841 5,001.285 2,953.514 Parker & Parsley Private Investment 90, L.P. ..... 439.460 183.432 629.750 6,034.439 3,351.532 Parker & Parsley 90 Spraberry Private Development, L.P. ........................................... 283.243 90.081 333.986 3,245.033 1,619.709 Parker & Parsley 91-A, L.P. ...................... 575.176 261.699 1,200.498 9,122.714 4,683.646 Parker & Parsley 91-B, L.P. ...................... 652.384 282.264 1,102.958 9,313.127 4,965.453 ---------- --------- ---------- ----------- ----------- Total All Partnerships............................ 14,017.596 7,061.660 28,654.090 185,182.201 105,854.154
--------------- * Proved developed includes proved developed producing and proved developed nonproducing; these funds do not include any value for the proved developed nonproducing category B-11 144 EXHIBIT IV SUMMARY LETTER INCLUDING 46 REPORTS OF REVIEW OF ESTIMATES PREPARED BY PIONEER NATURAL RESOURCES USA, INC. OF OIL AND GAS RESERVES AND ASSOCIATED FUTURE NET REVENUE TO THE INTERESTS OF THE LIMITED PARTNERS OR THE CONVERTED LIMITED PARTNERS IN VARIOUS PARKER & PARSLEY PARTNERSHIPS MANAGED BY PIONEER NATURAL RESOURCES USA, INC. EFFECTIVE MARCH 31, 2001 WILLIAMSON PROJECT 1.8859 NET RESERVES AND FUTURE NET REVENUE FROM REVIEW LETTERS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC. EFFECTIVE MARCH 31, 2001
TOTAL PROVED UNDEVELOPED ----------------------------------------------------------------------- FUTURE NET REVENUE, M$ NET RESERVES TO THE EVALUATED INTERESTS ----------------------------- --------------------------------------- DISCOUNTED PER OIL/CONDENSATE LIQUID GAS ANNUM AT (MBBL) (MBBL) (MMCF) UNDISCOUNTED 10.00 PERCENT ---------------- -------- --------- ------------ -------------- Parker & Parsley 81-I, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 81-II, Ltd............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 82-I, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 82-II, Ltd............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 82-III, Ltd............................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 83-A, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 83-B, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 84-A, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 85-A, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 85-B, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Private Investment 85-A, Ltd........... 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Selected 85 Private Investment, Ltd.... 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 86-A, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 86-B, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 86-C, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Private Investment 86, Ltd............. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 87-A Conv., Ltd........................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 87-A , Ltd............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 87-B Conv., Ltd........................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 87-B, Ltd.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Producing Properties 87-A, Ltd......... 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Producing Properties 87-B, Ltd......... 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Private Investment 87, Ltd............. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 88-A Conv., L.P........................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 88-A, L.P.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 88-B Conv., L.P........................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 88-B, L.P.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 88-C Conv., L.P........................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 88-C, L.P.............................. 0.000 0.000 0.000 0.000 0.000
B-12 145
TOTAL PROVED UNDEVELOPED ----------------------------------------------------------------------- FUTURE NET REVENUE, M$ NET RESERVES TO THE EVALUATED INTERESTS ----------------------------- --------------------------------------- DISCOUNTED PER OIL/CONDENSATE LIQUID GAS ANNUM AT (MBBL) (MBBL) (MMCF) UNDISCOUNTED 10.00 PERCENT ---------------- -------- --------- ------------ -------------- Parker & Parsley Producing Properties 88-A, L.P......... 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Private Investment 88, L.P............. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 89-A Conv., L.P........................ 0.828 6.130 42.428 89.536 27.373 Parker & Parsley 89-A, L.P.............................. 2.461 18.229 126.160 266.239 81.394 Parker & Parsley 89-B Conv., L.P........................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 89-B, L.P.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Private Investment 89, L.P............. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 90-A Conv., L.P........................ 0.382 2.825 19.561 45.508 14.780 Parker & Parsley 90-A, L.P.............................. 1.102 8.158 56.479 131.392 42.672 Parker & Parsley 90-B Conv., L.P........................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 90-B, L.P.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 90-C Conv., L.P........................ 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 90-C, L.P.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley Private Investment 90, L.P............. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 90 Spraberry Private Development, L.P................................................... 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 91-A, L.P.............................. 0.000 0.000 0.000 0.000 0.000 Parker & Parsley 91-B, L.P.............................. 0.000 0.000 0.000 0.000 0.000 Total All Partnerships.......................... 4.773 35.342 244.628 532.675 166.219
B-13 146 APPENDIX C TO PROXY STATEMENT/PROSPECTUS SUMMARY RESERVE REPORT OF WILLIAMSON PETROLEUM CONSULTANTS, INC. FOR THE PARTNERSHIPS AS OF DECEMBER 31, 2000 August 20, 2001 Pioneer Natural Resources USA, Inc. 5205 North O'Connor Boulevard, Suite 1400 Irving, Texas 75039 Attention Board of Directors Gentlemen: Subject: Revised Letter Report Including 46 Reports Prepared by Williamson Petroleum Consultants, Inc. for Pioneer Natural Resources USA, Inc. to the Interests of the Limited Partners or the Converted Limited Partners in Various Parker & Parsley Partnerships Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Williamson Project 0.8839 In accordance with your request, Williamson Petroleum Consultants, Inc. (Williamson) has prepared this revised summary letter for inclusion in the proxy statement to be distributed to the limited partners of the referenced partnerships by Pioneer Natural Resources USA, Inc. (Pioneer USA). This letter includes 46 Williamson reports prepared for Pioneer USA to the interests of the limited partners or the converted limited partners in various Parker & Parsley partnerships managed by Pioneer USA effective December 31, 2000 for disclosure to the Securities and Exchange Commission (SEC). A listing of the 46 Williamson reports is included as Exhibit I. This letter report has been revised to include updated wording in the definitions of SEC reserves. No other changes have been made to this document. I. ESTIMATED RESERVES AND ESTIMATED FUTURE NET REVENUES The total Williamson estimated net proved reserves that are attributable to the evaluated interests of the 46 partnership reports are shown in Exhibit II and were based on economic parameters and operating condition considered applicable as of December 31, 2000 and may be used in disclosure to the SEC. The present values of the estimated future net revenues from proved reserves were calculated using a discount rate of 10.00 percent per annum and were computed in accordance with the financial reporting requirements of the SEC and are presented in Exhibit II. At the request of Pioneer USA, Williamson used the Landmark graphics and reserves and economics evaluation software, Aries, to prepare this summary report. In evaluations of these properties prior to December 31, 1991, Williamson utilized its proprietary software programs. No comparative tests have been performed to determine the difference in evaluation results of either reserves or revenue quantities that may occur solely as a result of the differences in the programs nor has Williamson performed tests to determine the accuracy of Aries. However, in accordance with the request made by Pioneer USA and the general acceptance of Aries by the oil and gas industry, Williamson has used Aries to prepare this report. C-1 147 II. DEFINITIONS OF SEC RESERVES(1) The estimated reserves presented in this summary letter are net proved reserves, including proved developed producing, proved developed nonproducing, and proved undeveloped reserves, and were computed in accordance with the financial reporting requirements of the SEC. In preparing these evaluations, no attempt has been made to quantify the element of uncertainty associated with any category. Reserves were assigned to each category as warranted. The definitions of oil and gas reserves pursuant to the requirements of the Securities Exchange Act are: Proved Oil and Gas Reserves Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. A. Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes: 1. that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and 2. the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. B. Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the "proved" classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based. C. Estimates of proved reserves do not include the following: 1. oil that may become available from known reservoirs but is classified separately as "indicated additional reserves"; 2. crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; 3. crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and 4. crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite, and other such sources. Proved Developed Oil and Gas Reserves(2) Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should be included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. --------------- (1) For evaluations prepared for disclosure to the Securities and Exchange Commission, see United States Securities and Exchange Commission, Regulation S-X, Article 4 -- Rules of General Application, Reg. 210.4-10. (2) Williamson Petroleum Consultants, Inc. separates proved developed reserves into proved developed producing and proved developed nonproducing reserves. This is to identify proved developed producing reserves as those to be recovered from actively producing wells; proved developed nonproducing reserves as those to be recovered from wells or intervals within wells, which are completed but shut in waiting on equipment or pipeline connections, or wells where a relatively minor expenditure is required for recompletion to another zone. C-2 148 Proved Undeveloped Reserves Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual tests in the area and in the same reservoir. III. DISCUSSION OF SEC RESERVES The properties evaluated in this report are located in the states of Oklahoma and Texas with the majority of the value in the Spraberry (Trend Area) field, Texas. The individual projections of lease reserves and economics prepared to produce this summary report include data that describe the production forecasts and associated evaluation parameters such as interests, taxes, product prices, operating costs, investments, salvage values, abandonment costs, and net profit interests. Net income to the evaluated interests is the future net revenue after consideration of royalty revenue payable to others, taxes, operating expenses, investments, salvage values, abandonment costs, and net profit interests, as applicable. The future net revenue is before federal income tax and excludes consideration of any encumbrances against the properties if such exist. The future net revenue values presented in this report were based on projections of oil and gas production. It was assumed there would be no significant delay between the date of oil and gas production and the receipt of the associated revenue for this production. No opinion is expressed by Williamson in this report as to a fair market value of the evaluated properties. Unless specifically identified and documented by Pioneer USA as having curtailment problems, gas production trends have been assumed to be a function of well productivity and not of market conditions. The effect of "take or pay" clauses in gas contracts was not considered. Oil and natural gas liquids (NGL) reserves are expressed in thousands of United States (U.S.) barrels (MBBL) of 42 U.S. gallons. Gas volumes are expressed in millions of cubic feet (MMCF) at 60 degrees Fahrenheit and at the legal pressure base that prevails in the state which the reserves are located. No adjustment of the individual gas volumes to a common pressure base has been made. This report includes only those costs and revenues which are considered by Pioneer USA to be directly attributable to individual leases and areas. There could exist other revenues, overhead costs, or other costs associated with Pioneer USA or the Limited Partners/Converted Limited Partners which are not included in this report. Such additional costs and revenues are outside the scope of this report. This report is not a financial statement for Pioneer USA or the Limited Partners/Converted Limited Partners and should not be used as the sole basis for any transaction concerning Pioneer USA, the Limited Partners/Converted Limited Partners, or the evaluated properties. The reserves projections in this report are based on the use of the available data and accepted industry engineering methods. Future changes in any operational or economic parameters or production characteristics of the evaluated properties could increase or decrease their reserves. Unforeseen changes in market demand or allowables set by various regulatory agencies could also cause actual production rates to vary from those projected. Williamson reserves the right to alter any of the reserves projections and the associated economics included in this evaluation in any future evaluations based on additional data that may be acquired. All data utilized in the preparation of this report with respect to interests, reversionary status, oil and gas prices, gas categories, gas contract terms, operating expenses, investments, salvage values, abandonment costs, net profit interests, well information, and current operating conditions, as applicable, were provided by Pioneer USA. Production data provided by Pioneer USA were utilized. The production data was generally through October 2000. All data have been reviewed for reasonableness and, unless obvious errors were detected, have been accepted as correct. It should be emphasized that revisions to the projections of reserves and economics included in this report may be required if the provided data are revised for any reason. No inspection of the properties was made as this was not considered within the scope of this C-3 149 evaluation. No investigation was made of any environmental liabilities that might apply to the evaluated properties, and no costs are included for any possible related expenses. Since sufficient production history and other data were available, the estimates of reserves contained in this report were determined by extrapolation of historical production trends and in accordance with the Definitions of SEC Reserves included in this summary letter report. Prices for oil sold as of December 31, 2000 were provided by Pioneer USA to be used at the effective date. These prices include adjustments for API gravity, transportation, and any bonus paid. These adjustments were made by Pioneer USA. After the effective date, prices were held constant for the life of the properties. No attempt has been made to account for oil price fluctuations which have occurred in the market subsequent to the effective date of this report. Prices for gas sold as of December 31, 2000 were provided by Pioneer USA to be used at the effective date. These prices include adjustments for British thermal unit content, shrinkage due to NGL removal, transportation and handling charges, and any other known differences between sales and produced volumes. These adjustments were made by Pioneer USA. After the effective date, prices were held constant for the life of the properties unless Pioneer USA indicated that changes were provided for by contract. All gas prices were applied to projected wellhead volumes. Prices for NGL sold as of December 31, 2000 were provided by Pioneer USA to be used at the effective date. NGL reserves were projected as a separate stream using a constant ratio (barrels of NGL/thousand cubic feet of gas) based on historical yields. After the effective date, prices were held constant for the life of the properties. No attempt has been made to account for price fluctuations which have occurred in the market subsequent to the effective date of this report. It should be emphasized that with the current economic uncertainties, fluctuation in market conditions could significantly change the economics of the properties included in this report. Operating expenses were provided by Pioneer USA and represented, when possible, the latest available 12-month average of all recurring expenses which are billable to the working interest owners. These expenses included, but were not limited to, all direct operating expenses, field overhead costs, and any ad valorem taxes not deducted separately. Expenses for workovers, well stimulations, and other maintenance were not included in the operating expenses unless such work was expected on a recurring basis. Judgments for the exclusion of the nonrecurring expenses were made by Pioneer USA. Operating costs were held constant for the life of the properties. State production and county ad valorem taxes have been deducted at the published rates as provided by Pioneer USA. A 7.5 percent severance tax exemption was applied until September 2001 for qualifying wells. IV. CONSENT AND DECLARATION OF INDEPENDENT STATUS We understand that our estimates are to be included in a Registration Statement on Form S-4 under the Securities Act of 1933 to be filed by you with the SEC and in the proxy statement/prospectus included therein. We understand further that the estimates may be used by you to establish merger values for the Partnerships. With this understanding in mind, we have consistently applied the generally accepted petroleum engineering and evaluation principles in estimating the proved oil and gas reserves and in computing the future net revenues derived from such reserves for each property attributable to the interests held by the Partnerships. Based on information supplied by Pioneer USA, neither capital costs nor salvage values were included in the projections of reserves and economics in this report. C-4 150 Williamson is an independent consulting firm and does not own any interests in the oil and gas properties covered by this report. No employee, officer, or director of Williamson is an employee, officer, or director of Pioneer USA or any of the subject partnerships. Neither the employment of nor the compensation received by Williamson is contingent upon the values assigned to the properties covered by this report. Yours very truly, WILLIAMSON PETROLEUM CONSULTANTS, INC. /s/ JOHN D. SAVAGE, P.E. -------------------------------------------------- John D. Savage, P.E. Senior Vice President JDS/chk Enclosures C-5 151 EXHIBIT I LETTER REPORT INCLUDING 46 REPORTS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC. FOR PIONEER NATURAL RESOURCES USA, INC. TO THE INTERESTS OF LIMITED PARTNERS OR THE CONVERTED LIMITED PARTNERS IN VARIOUS PARKER & PARSLEY PARTNERSHIPS MANAGED BY PIONEER NATURAL RESOURCES USA, INC. EFFECTIVE DECEMBER 31, 2000 FOR DISCLOSURE TO THE SECURITIES AND EXCHANGE COMMISSION WILLIAMSON PROJECT 0.8839 LIST OF WILLIAMSON PETROLEUM CONSULTANTS, INC. REPORTS EFFECTIVE DECEMBER 31, 2000 "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 81-I, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 81-II, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 82-I, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 82-II, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 82-III, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 83-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 83-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 84-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 85-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 85-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Private Investment 85-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" C-6 152 "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Selected 85 Private Investment, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 86-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 86-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 86-C, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Private Investment 86, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 87-A Converted, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 87-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 87-B Converted, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 87-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Producing Properties 87-A, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Producing Properties 87-B, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Private Investment 87, Ltd. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 88-A Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 88-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 88-B Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 88-B, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" C-7 153 "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 88-C Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 88-C, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Producing Properties 88-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Private Investment 88, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 89-A Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 89-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 89-B Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 89-B, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Private Investment 89, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 90-A Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 90-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 90-B Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 90-B, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited Partners in Parker & Parsley 90-C Converted, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 90-C, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley Private Investment 90, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" C-8 154 "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 90 Spraberry Private Development, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 91-A, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" "Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in Parker & Parsley 91-B, L.P. Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities and Exchange Commission Summary Report Utilizing Aries Software Williamson Project 0.8839" C-9 155 EXHIBIT II LETTER REPORT INCLUDING 46 REPORTS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC. FOR PIONEER NATURAL RESOURCES USA, INC. TO THE INTERESTS OF LIMITED PARTNERS OR THE CONVERTED LIMITED PARTNERS IN VARIOUS PARKER & PARSLEY PARTNERSHIPS MANAGED BY PIONEER NATURAL RESOURCES USA, INC. EFFECTIVE DECEMBER 31, 2000 FOR DISCLOSURE TO THE SECURITIES AND EXCHANGE COMMISSION WILLIAMSON PROJECT 0.8839 NET RESERVES AND FUTURE NET REVENUE FROM REPORTS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC. EFFECTIVE DECEMBER 31, 2000
TOTAL PROVED DEVELOPED PRODUCING ---------------------------------------------------------------------- NET RESERVES TO FUTURE NET REVENUE, M$ THE EVALUATED INTERESTS ---------------------------- --------------------------------------- DISCOUNTED OIL/CONDENSATE LIQUID GAS PER ANNUM AT PIONEER FUNDS (Mbbl) (Mbbl) (MMcf) UNDISCOUNTED 10.00 PERCENT ------------- -------------- --------- ---------- ------------ ------------- Parker & Parsley 81-I, Ltd. ...................... 99.997 58.388 320.081 2,810.911 1,436.523 Parker & Parsley 81-II, Ltd. ..................... 84.731 67.440 222.749 1,977.257 1,062.283 Parker & Parsley 82-I, Ltd. ...................... 194.780 73.613 603.859 4,656.049 2,419.619 Parker & Parsley 82-II, Ltd. ..................... 211.725 94.426 467.740 4,879.008 2,416.761 Parker & Parsley 82-III, Ltd. .................... 164.851 68.468 223.717 2,916.207 1,539.389 Parker & Parsley 83-A, Ltd. ...................... 497.915 281.533 1,156.089 11,168.739 5,649.205 Parker & Parsley 83-B, Ltd. ...................... 608.901 345.775 1,553.450 14,112.492 7,165.928 Parker & Parsley 84-A, Ltd. ...................... 608.956 403.376 1,678.388 15,623.823 7,676.646 Parker & Parsley 85-A, Ltd. ...................... 243.615 134.904 512.744 5,195.717 2,783.387 Parker & Parsley 85-B, Ltd. ...................... 201.444 99.966 455.062 4,490.151 2,308.454 Parker & Parsley Private Investment 85-A, Ltd. ... 228.363 96.999 353.440 5,194.664 2,383.495 Parker & Parsley Selected 85 Private Investment, Ltd. ........................................... 130.193 99.486 381.116 3,650.520 1,810.634 Parker & Parsley 86-A, Ltd. ...................... 250.327 197.841 859.633 7,179.394 3,574.162 Parker & Parsley 86-B, Ltd. ...................... 618.084 308.191 1,200.966 14,120.080 7,029.228 Parker & Parsley 86-C, Ltd. ...................... 563.752 325.531 1,246.684 11,898.910 6,501.998 Parker & Parsley Private Investment 86, Ltd. ..... 208.138 106.060 491.002 4,920.619 2,468.192 Parker & Parsley 87-A Conv., Ltd. ................ 113.696 66.277 287.292 2,873.802 1,450.827 Parker & Parsley 87-A, Ltd. ...................... 834.588 487.044 2,112.270 21,154.029 10,747.196 Parker & Parsley 87-B Conv., Ltd. ................ 157.541 88.713 365.167 3,907.545 1,832.825 Parker & Parsley 87-B, Ltd. ...................... 643.391 362.299 1,491.327 15,958.265 7,485.189 Parker & Parsley Producing Properties 87-A, Ltd. ........................................... 553.134 153.947 705.887 9,228.521 4,636.341 Parker & Parsley Producing Properties 87-B, Ltd. ........................................... 348.562 183.827 852.462 9,400.038 4,368.675 Parker & Parsley Private Investment 87, Ltd. ..... 525.646 229.811 959.391 12,336.452 5,141.312 Parker & Parsley 88-A Conv., L.P. ................ 144.189 81.404 314.160 3,480.240 1,705.478 Parker & Parsley 88-A, L.P. ...................... 491.675 277.590 1,071.291 11,868.418 5,816.075 Parker & Parsley 88-B Conv., L.P. ................ 185.600 84.916 353.516 4,354.398 2,077.136 Parker & Parsley 88-B, L.P. ...................... 457.018 209.116 870.573 10,723.127 5,115.146 Parker & Parsley 88-C Conv., L.P. ................ 145.815 74.419 309.894 3,561.005 1,706.767 Parker & Parsley 88-C, L.P. ...................... 103.921 53.036 220.852 2,537.908 1,216.403 Parker & Parsley Producing Properties 88-A, L.P. ........................................... 273.838 149.368 558.886 6,727.211 3,225.257 Parker & Parsley Private Investment 88, L.P. ..... 509.333 253.748 928.143 12,668.293 5,826.092 Parker & Parker 89-A Conv., L.P. ................. 136.107 64.524 282.306 3,433.908 1,667.718 Parker & Parsley 89-A, L.P. ...................... 404.668 191.841 839.377 10,210.849 4,959.027 Parker & Parsley 89-B Conv., L.P. ................ 276.640 159.018 597.289 6,717.103 3,379.724 Parker & Parsley 89-B, L.P. ...................... 304.369 175.038 657.490 7,386.746 3,718.741
C-10 156
TOTAL PROVED DEVELOPED PRODUCING ---------------------------------------------------------------------- NET RESERVES TO FUTURE NET REVENUE, M$ THE EVALUATED INTERESTS ---------------------------- --------------------------------------- DISCOUNTED OIL/CONDENSATE LIQUID GAS PER ANNUM AT PIONEER FUNDS (Mbbl) (Mbbl) (MMcf) UNDISCOUNTED 10.00 PERCENT ------------- -------------- --------- ---------- ------------ ------------- Parker & Parsley Private Investment 89, L.P. ..... 324.948 138.741 489.327 6,929.194 3,302.639 Parker & Parsley 90-A Conv., L.P. ................ 86.964 46.820 168.458 2,004.818 1,042.228 Parker & Parsley 90-A, L.P. ...................... 253.836 136.323 490.071 5,806.774 3,011.223 Parker & Parsley 90-B Conv., L.P. ................ 503.298 242.511 965.950 11,527.923 5,694.202 Parker & Parsley 90-B, L.P. ...................... 1,370.202 658.317 2,621.779 31,316.135 15,461.210 Parker & Parsley 90-C Conv., L.P. ................ 323.794 138.198 463.058 6,302.167 3,212.933 Parker & Parsley 90-C, L.P. ...................... 520.528 222.164 744.398 10,131.499 5,165.181 Parker & Parsley Private Investment 90, L.P. ..... 584.599 228.964 801.496 12,370.155 5,691.401 Parker & Parsley 90 Spraberry Private Development, L.P. ........................................... 313.028 100.516 377.597 5,906.691 2,549.362 Parker & Parsley 91-A, L.P. ...................... 662.796 306.258 1,409.517 17,786.756 8,134.929 Parker & Parsley 91-B, L.P. ...................... 719.664 311.695 1,213.315 17,109.740 8,280.085 ---------- --------- ---------- ----------- ----------- Total All Partnerships............................ 17,189.160 8,638.440 35,249.259 400,514.251 195,847.226
C-11 157 APPENDIX D TO [ROBERT A. STANGER LOGO] PROXY STATEMENT/PROSPECTUS FAIRNESS OPINION OF ROBERT A. STANGER & CO., INC.
August 20, 2001 Board of Directors of Pioneer Natural Resources USA, Inc., As the Sole or Managing General Partner of The Partnerships Identified on Exhibit I 1400 Williams Square West 5205 North O'Connor Boulevard Irving, Texas 75039 Gentlemen: Pioneer Natural Resources USA, Inc. ("Pioneer USA"), the sole or managing general partner of the partnerships identified in Exhibit I attached hereto ("the Partnerships"), has advised us that the Partnerships are contemplating a transaction (the "Transaction") pursuant to an agreement (the "Merger Agreement") in which the Partnerships will merge with and into Pioneer USA and the interests of the limited partners (the "Limited Partners") in each Partnership will be converted into the right to receive shares of common stock (the "Pioneer Parent Shares") of Pioneer Natural Resources Company ("Pioneer Parent") equal to the estimated value of such Partnership's oil and gas reserves (the "Reserve Value") and net working capital (the "Working Capital Balance") as of March 31, 2001, less such Partnership's pro rata share, based upon its Reserve Value, of the first $2 million of estimated expenses and fees of the mergers of all of the Partnerships and a cash distribution made in July, 2001 (collectively, referred to herein as the "Merger Value"). We have been advised that the Merger Value will be allocated and paid to holders of limited partnership interests (the "Limited Partner Interests") of each Partnership in accordance with the provisions of the Partnership agreement of each Partnership relating to a liquidation of the Partnership. We have been further advised that the Reserve Value has been established by Pioneer USA and its parent company, Pioneer Parent, based upon the present value of estimated future net revenues (after certain expenses and charges) from each Partnership's proved oil and gas reserves as of March 31, 2001 utilizing prices for 2001, 2002, 2003, 2004 and thereafter of $26.17, $24.36, $22.83, $22.31 and $21.97 per barrel of oil and $5.18, $4.61, $4.16, $4.09 and $4.12 per thousand cubic feet of gas, and a discount rate of 10.0%. We have been further advised that the Reserve Value is based upon the reserve report of Pioneer USA and Pioneer Parent, as reviewed by Williamson Petroleum Consultants, Inc. ("Williamson"), an independent petroleum engineering firm, as of March 31, 2001, and to which Pioneer USA and Pioneer Parent applied the prices previously stated (the "Reserve Analysis"). We have been advised that the Limited Partners in each Partnership will have the opportunity to approve or reject the participation by their Partnership in the Transaction pursuant to a proxy statement/prospectus (the "Proxy Statement/Prospectus") and a Limited Partners meeting which will be prepared and held, respectively, in connection with the Transaction, and further that Limited Partners in each Partnership, in exchange for Limited Partner Interests, will receive the allocated Merger Value in Pioneer Parent Shares. We have been advised that the value to be ascribed to each share of Pioneer Parent, which is listed on the New York Stock Exchange ("NYSE"), shall be equal to the average closing price for such shares on the NYSE for the ten trading day period ending three business days prior to the special meeting of the Limited Partners contemplated herein. You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide an opinion as to the fairness from a financial point of view to the unaffiliated Limited Partners of each Partnership and the unaffiliated limited partners of the nonmanaging general partner of each applicable Partnership of the Merger Value ascribed to each Partnership and the allocation thereof to: (i) the Limited Partners of each Partnership, as a group; (ii) the general partners of each Partnership as a group; (iii) Pioneer USA, as the managing or sole general partner of each partnership; (iv) the D-1 158 unaffiliated Limited Partners of each Partnership, as a group; and (v) the unaffiliated limited partners of the nonmanaging general partner of each applicable Partnership as a group. Stanger, founded in 1978, has provided research, investment banking and consulting services to clients located throughout the United States, including major New York Stock Exchange member firms and insurance companies and over seventy companies engaged in the management and operations of partnerships. The investment banking activities of Stanger include financial advisory services, asset and securities valuations, industry and company research and analysis, litigation support and expert witness services, and due diligence investigations in connection with both publicly registered and privately placed securities transactions. Stanger, as part of its investment banking business, is regularly engaged in the valuation of securities in connection with mergers, acquisitions, and reorganizations and for estate, tax, corporate and other purposes. In particular, Stanger's valuation practice principally involves partnerships, partnership securities and assets typically owned through partnerships including, but not limited to, oil and gas reserves, real estate, mortgages secured by real estate, cable television systems, and equipment leasing assets. In arriving at the opinion set forth below, we have: - Reviewed the Preliminary Proxy Statement/Prospectus; - Reviewed a draft of the Merger Agreement which Pioneer USA has indicated to be in substantially the form which will be executed in connection with the Transaction; - Reviewed the financial statements of each partnership, including, if applicable, the partnership's Form 10-Q and Form 10-K, for the six months ended June 30, 2001 and for the years ended December 31, 2000, 1999 and 1998; - Reviewed the Reserve Analyses of each Partnership reviewed by Williamson as of March 31, 2001; - Reviewed the Reserve Analyses of each Partnership prepared by Williamson as of December 31, 2000; - Reviewed the calculations prepared by Pioneer USA and Pioneer Parent of the Merger Value per $1,000 original investment in each Partnership; - Reviewed Pioneer USA's analysis of other alternatives to the merger of each partnership, including going concern value, liquidation value, royalty trust and production payment; - Reviewed estimates prepared by Pioneer USA and Pioneer Parent of the going concern value and liquidation value per $1,000 original investment in each Partnership; - Interviewed key management personnel of Pioneer USA regarding the oil and gas reserves, the financial condition of each Partnership and the terms of the Transaction; - Reviewed the financial statements of Pioneer Parent included in its Form 10-Q for the six months ended June 30, 2001 and its Form 10-K for the years ended December 31, 2000, 1999 and 1998; - Reviewed pro forma financial data for Pioneer Parent assuming the completion of the Transaction; - Reviewed recent secondary market trading activity for interests in the Partnerships, as available; - Reviewed recent trading activity in Pioneer Parent Shares; and - Conducted such other studies, analyses, inquiries and investigations as we deemed appropriate. In rendering this opinion, we have relied, without independent verification, on the accuracy and completeness in all material respects of all financial and other information that was furnished or otherwise communicated to us by Pioneer USA, Pioneer Parent and the Partnerships. We have been advised by Pioneer USA and Pioneer Parent that the oil and gas properties owned by the Partnerships are subject to operating agreements (the "Operating Agreements") with Pioneer USA and that: (i) such Operating Agreements provide for the payment of overhead charges and that such charges are reasonable compared to amounts charged for similar services by third-party operators; and (ii) except for cause, such Operating Agreements do not provide for the termination of Pioneer USA as operator, and (iii) such Operating Agreements do not provide for the revision of overhead charges, except as escalated under the terms of such Operating Agreements. Furthermore, we have been advised by Pioneer USA and Pioneer Parent that if each Partnership's reserves were offered for sale to a third party, a condition of such sale would be that the oil and gas reserves would continue to be subject to the Operating Agreements with Pioneer USA which provide for the payment of overhead charges, and that it would be appropriate to assume, when estimating the value of such reserves, that such charges would D-2 159 continue. We have also been advised that the Merger Value of each Partnership has been properly allocated between Pioneer USA, the unaffiliated limited partners of the nonmanaging general partner, and Limited Partners of each Partnership in accordance with the Partnership Agreement with respect to a liquidation of such Partnership. We have not performed an independent appraisal of the oil and gas reserves or other assets and liabilities of the Partnerships. We have not conducted any engineering studies and have relied on estimates of Pioneer USA and Pioneer Parent, which were reviewed by Williamson Petroleum Consultants, Inc., with respect to oil and gas reserve volumes, prices, operating costs, and overhead charges. We have relied on the assurance of Pioneer USA, Pioneer Parent and the Partnerships that: (i) the Reserve Analysis provided to us was in the judgment of Pioneer USA and the Partnerships reasonably prepared on bases consistent with actual historical experience and reflect their best currently available estimates and good faith judgments; (ii) there are no estimates of costs to remediate environmental conditions included in the Reserve Analysis; (iii) any historical financial data, balance sheet data, transaction cost estimates, Merger Value analyses, going concern value analyses and liquidation value analyses are accurate and complete in all material respects; (iv) all allocations included within the calculations of Merger Values, going concern values and liquidation values have been made in accordance with the Partnership Agreement for each Partnership; (v) no material changes have occurred in the information reviewed or in the value of the oil and gas reserves or Working Capital Balances as of March 31, 2001 of each Partnership between the date the information was provided to us and the date of this letter; (vi) the relative ownership interest of the Limited Partners, unaffiliated Limited Partners, general partners, unaffiliated limited partners of the nonmanaging general partner of each applicable Partnership and Pioneer USA, as manager or sole general partner, is accurately included in accordance with the Partnership Agreements on the analyses provided to us by Pioneer USA; (vii) neither Pioneer Parent or any of its affiliates has during the thirty days prior to the date hereof commenced or continued a share repurchase program or similar transaction which could affect the Pioneer Parent Share price to be used in the Transaction; and (viii) Pioneer USA, Pioneer Parent and the Partnerships are not aware of any information or facts regarding the Partnerships, the oil and gas properties, the Reserve Analysis or the Working Capital Balances of each Partnership that would cause the information supplied to us to be incomplete or misleading in any material respect. We have not been requested to, and therefore did not: (i) make any recommendation to Pioneer USA, the Partnerships or the Limited Partners with respect to whether to approve or reject the Transaction; (ii) determine or negotiate the amount or form of the Merger Value to be paid for Limited Partner Interests in the Transaction; (iii) offer the assets of the Partnerships for sale to any third party; (iv) express any opinion as to: (a) the impact of the Transaction with respect to Pioneer USA or the Limited Partners of any Partnerships that do not participate in the Transaction; (b) the tax consequences of the Transaction for Pioneer USA, the unaffiliated limited partners of the nonmanaging general partner or the Limited Partners of any Partnership; (c) Pioneer USA's or Pioneer Parent's ability to finance their obligations pursuant to the Merger Agreement or the impact of a failure to obtain financing on the financial performance of Pioneer USA, Pioneer Parent or the Partnerships; (d) Pioneer USA's decision to estimate the Reserve Value of the oil and gas reserves of each Partnership based upon the continued operation of the properties by Pioneer USA and the payment of overhead charges in accordance with existing Operating Agreements or the impact, if any, on the estimated values of the Partnerships' oil and gas reserves if Pioneer USA and Pioneer Parent determined to offer or operate the assets subject to revised Operating Agreements; (e) whether or not alternative methods of determining the Merger Value would have also provided fair results or results substantially similar to the methodology used; (f) alternatives to the Transaction, including the offering of such assets for sale to third-party buyers; (g) the trading price of Pioneer Parent Shares immediately following the closing of the Transaction and the distribution of Pioneer Parent Shares in connection therewith; (h) the fairness of the termination of the repurchase obligations of Pioneer USA with respect to those partnerships wherein Pioneer USA is obligated to offer to repurchase limited partnership interests annually based upon a formula which, in certain circumstances including the repurchase offers based upon December 31, 2000 oil and gas prices, result in repurchase offer prices above the market value for the reserves of such Partnerships; or (i) any other terms of the Transaction. This letter does not purport to be a complete description of the analyses performed or the matters considered in rendering this opinion. The analyses and the summary set forth herein must be considered as a whole, and selecting portions of such summary or analyses without considering all factors and analyses would create an incomplete view of the process underlying this opinion. In rendering this opinion, judgment was applied to a variety of complex analyses and assumptions. The assumptions made and the judgments applied in rendering the opinion are not readily susceptible to partial analysis or summary description. The fact that any specific analysis is referred to herein is not meant to indicate that such analysis was given greater weight than any other analyses. D-3 160 Our opinion is based on business, economic, oil and gas market, and other conditions as of the date of our analysis and addresses the Merger Value in the context of information available as of the date of our analysis. Events occurring after that date could affect the value of the assets of the Partnerships or the assumptions used in preparing this opinion. Based upon and subject to the foregoing, it is our opinion that, as of the date of this letter and subject to the assumptions, limitations and qualifications contained herein, the Merger Value ascribed to each Partnership in connection with the Transaction and the allocation thereof to: (i) the Limited Partners of each Partnership, as a group; (ii) the general partners of each Partnership, as a group; (iii) Pioneer USA, as the managing or sole general partner of each Partnership; (iv) the unaffiliated Limited Partners of each Partnership, as a group; and (v) the unaffiliated limited partners of the non-managing general partner of each applicable Partnership, as a group; is fair to the unaffiliated Limited Partners of each Partnership and the unaffiliated limited partners of the nonmanaging general partner of each applicable Partnership, from a financial point of view. Yours truly, /s/ ROBERT A. STANGER & CO., INC. Robert A. Stanger & Co., Inc. Shrewsbury, New Jersey August 20, 2001 D-4 161 EXHIBIT I PARTNERSHIPS Parker & Parsley 81-I, Ltd. Parker & Parsley 81-II, Ltd. Parker & Parsley 82-I, Ltd. Parker & Parsley 82-II, Ltd. Parker & Parsley 82-III, Ltd. Parker & Parsley 83-A, Ltd. Parker & Parsley 83-B, Ltd. Parker & Parsley 84-A, Ltd. Parker & Parsley 85-A, Ltd. Parker & Parsley 85-B, Ltd. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley Selected 85 Private Investment, Ltd. Parker & Parsley 86-A, Ltd. Parker & Parsley 86-B, Ltd. Parker & Parsley 86-C, Ltd. Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 87-A Conv., Ltd. Parker & Parsley 87-A, Ltd. Parker & Parsley 87-B Conv., Ltd. Parker & Parsley 87-B, Ltd. Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley Private Investment 87, Ltd. Parker & Parsley 88-A Conv., Ltd. Parker & Parsley 88-A, L.P. Parker & Parsley 88-B Conv., L.P. Parker & Parsley 88-B, L.P. Parker & Parsley 88-C Conv., L.P. Parker & Parsley 88-C, L.P. Parker & Parsley Producing Properties 88-A, L.P. Parker & Parsley Private Investment 88, L.P. Parker & Parsley 89-A Conv., L.P. Parker & Parsley 89-A, L.P. Parker & Parsley 89-B Conv., L.P. Parker & Parsley 89-B, L.P. Parker & Parsley Private Investment 89, L.P. Parker & Parsley 90-A Conv., L.P. Parker & Parsley 90-A, L.P. Parker & Parsley 90-B Conv., L.P. Parker & Parsley 90-B, L.P. Parker & Parsley 90-C Conv., L.P. Parker & Parsley 90-C, L.P. Parker & Parsley Private Investment 90, L.P. Parker & Parsley 90 Spraberry Private Development, L.P. Parker & Parsley 91-A, L.P. Parker & Parsley 91-B, L.P. D-5 162 APPENDIX E TO PROXY STATEMENT/PROSPECTUS THE MERGER PROPOSALS The merger proposals for each partnership, except as otherwise indicated, are set forth below. For each partnership, the merger proposals include the approval of: - the merger agreement dated September 20, 2001, for that partnership, pursuant to which: - the partnership will be merged with and into Pioneer USA, on the terms and subject to the conditions set forth in the merger agreement as described in the proxy statement/prospectus; and - each partner, whether limited or general, but other than Pioneer USA, will receive Pioneer Parent common stock in an amount based on the merger value of that partnership in exchange for that partner's partnership interests; - the merger amendment for that partnership authorizing: - the merger of the partnership with and into Pioneer USA, with Pioneer USA being the surviving entity; - the elimination of any restrictions on the merger otherwise contained in the partnership's partnership agreement; and - the opinion of special legal counsel for the limited partners and the selection of that counsel. For each partnership, approval of the merger proposals requires the affirmative vote of limited partners who own or have the power to vote a majority, or 66 2/3% for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., of the limited partnership interests in that partnership. The effect of an abstention or a failure to vote is the same as a vote against the merger proposals. See "The Special Meetings -- Record Date; Voting Rights and Proxies." Subject to the terms and conditions of the merger of each partnership as described in the proxy statement/prospectus under "The Merger Agreement," if the merger proposals are approved by a partnership, that participating partnership will merge with and into Pioneer USA, with Pioneer USA being the surviving entity. From and after the closing of the merger of each participating partnership, the partnership interests of the partners in that partnership will represent the right to receive an amount of Pioneer Parent common stock as described in the proxy statement/prospectus. Generally, the partnership agreement of each partnership requires that special legal counsel for the limited partners, acceptable to the partnership, deliver a legal opinion, acceptable to the partnership, that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, (relying as to matters of Texas law on the opinion of Arter & Hadden LLP of Dallas, Texas) has delivered that opinion, subject to the approval of the limited partners of that opinion and the selection of special legal counsel for the limited partners for the limited purpose of rendering that opinion. See "The Merger of Each Partnership -- Legal Opinion for Limited Partners." APPROVAL OF MERGER FOR EACH PARTNERSHIP FORMED IN TEXAS: RESOLVED: That, subject to receipt of a favorable opinion of special legal counsel for the limited partners as described in the proxy statement/prospectus, the partnership be merged with and into Pioneer USA, with Pioneer USA being the surviving entity, and that an amount of Pioneer Parent common stock be issued to each partner, other than Pioneer USA, in accordance with the terms set forth in the merger agreement included as Appendix F to the proxy statement/prospectus and subject to the conditions set forth therein. E-1 163 RESOLVED: That, subject to receipt of a favorable opinion of special legal counsel for the limited partners as described in the proxy statement/prospectus, the following new article shall be added to the partnership agreement of the partnership: ARTICLE Notwithstanding any provisions of this Agreement to the contrary, it is hereby agreed as follows: 1. Definitions. For the purposes of this Article, "Proxy Statement/Prospectus" means the proxy statement/ prospectus dated , 2001, of Pioneer Natural Resources Company, a Delaware corporation ("Pioneer Parent"), and Pioneer Natural Resources USA, Inc., a Delaware corporation ("Pioneer USA"), contained in the Registration Statement on Form S-4 (File No. 333-59094) of Pioneer Parent filed with the Securities and Exchange Commission. 2. Elimination of Restrictions to Transaction. Notwithstanding anything in this Agreement to the contrary, upon the consent of limited partners holding a majority of the outstanding limited partnership interests in the partnership, which consent may or may not be the same consent to the adoption of an amendment to this Agreement, the merger of the partnership described in the Proxy Statement/Prospectus and the Merger Agreement included as Appendix F thereto shall be authorized by the Agreement and the limited partners, and no provision of this Agreement shall prohibit, limit or prevent: (a) the merger or consolidation of the partnership, including the merger described in the Proxy Statement/ Prospectus, with any other domestic limited partnership or other entity, as those terms are defined in the Texas Revised Limited Partnership Act, and (b) the consummation of the merger of the partnership as described in the Proxy Statement/Prospectus. In addition, no consent of the partnership, Pioneer USA or any partner or other procedure, including the delivery of opinions of counsel, shall be required in order to enable the partnership, Pioneer USA or any partner to effect the merger. 3. Mergers. For purposes of this Agreement, each merger described in the Proxy Statement/Prospectus shall be treated as if the partnership has: (a) disposed of all of its assets and liabilities to Pioneer USA in exchange for an amount of Pioneer Parent common stock representing the merger value of the partnership, and (b) liquidated in the manner provided in the liquidation provisions of this Agreement. Accordingly, upon the partnership's deemed liquidation resulting from the merger, Pioneer Parent will issue an amount of Pioneer Parent common stock to the partners, other than Pioneer USA, in accordance with the liquidation provisions of this Agreement. For purposes of Texas law, the merger shall be a merger subject to the provisions of Section 2.11 of the Texas Revised Limited Partnership Act. 4. Authority of Pioneer USA as General Partner. By obtaining the approval of the limited partners described in Section 2 of this Article, the partnership hereby extends the power of attorney granted to Pioneer USA pursuant to this Agreement to permit Pioneer USA to execute the merger agreement described in the Proxy Statement/ Prospectus and the merger amendment contemplated by this Article on behalf of the limited partners. Pioneer USA shall be authorized, at such time in its full discretion as it deems appropriate, to execute, acknowledge, verify, deliver, file and record, for and in the name and on behalf of the partnership, Pioneer USA and the limited partners, any and all documents, agreements, certificates and instruments, and shall do and perform any and all acts required by applicable law or which Pioneer USA deems necessary or advisable in order to give effect to this Article and the transactions contemplated herein, including, but not limited to, the merger. 5. This Article Controlling. The provisions of this Article shall control over all other provisions of this Agreement. Except as herein expressly amended, all other terms and provisions of this Agreement shall remain in full force and effect. E-2 164 APPROVAL OF MERGER FOR EACH PARTNERSHIP FORMED IN DELAWARE: RESOLVED: That, subject to receipt of a favorable opinion of special legal counsel for the limited partners as described in the proxy statement/prospectus, the partnership be merged with and into Pioneer USA, with Pioneer USA being the surviving entity, and that an amount of Pioneer Parent common stock be issued to each partner, other than Pioneer USA, in accordance with the terms set forth in the merger agreement included as Appendix F to the proxy statement/prospectus and subject to the conditions set forth therein. RESOLVED: That, subject to receipt of a favorable opinion of special legal counsel for the limited partners as described in the proxy statement/prospectus, the following new article shall be added to the partnership agreement of the partnership: ARTICLE Notwithstanding any provisions of this Agreement to the contrary, it is hereby agreed as follows: 1. Definitions. For the purposes of this Article, "Proxy Statement/Prospectus" means the proxy statement/ prospectus dated , 2001 of Pioneer Natural Resources Company, a Delaware corporation ("Pioneer Parent"), and Pioneer Natural Resources USA, Inc., a Delaware corporation ("Pioneer USA"), contained in the Registration Statement on Form S-4 (File No. 333-59094) of Pioneer Parent filed with the Securities and Exchange Commission. 2. Elimination of Restrictions to Transaction. Notwithstanding anything in this Agreement to the contrary, upon the consent of limited partners holding a majority of the outstanding limited partnership interests in the partnership, which consent may or may not be the same consent to the adoption of an amendment to this Agreement, no provision of this Agreement shall prohibit, limit or prevent: (a) the merger or consolidation of the partnership, including the merger described in the Proxy Statement/ Prospectus, with any other domestic limited partnership or other business entity, as those terms are defined in the Delaware Revised Uniform Limited Partnership Act, and (b) the consummation of the merger of the partnership as described in the Proxy Statement/Prospectus. In addition, no consent of the partnership, Pioneer USA or any partner or other procedure, including the delivery of opinions of counsel, shall be required in order to enable the partnership, Pioneer USA or any partner to effect the merger. 3. Mergers. For purposes of this Agreement, each merger described in the Proxy Statement/Prospectus shall be treated as if the partnership has: (a) disposed of all of its assets and liabilities to Pioneer USA in exchange for an amount of Pioneer Parent common stock representing the merger value of the partnership, and (b) liquidated in the manner provided in the liquidation provisions of this Agreement. Accordingly, upon the partnership's deemed liquidation resulting from the merger, Pioneer Parent will issue an amount of Pioneer Parent common stock to the partners, other than Pioneer USA, in accordance with the liquidation provisions of this Agreement. For purposes of Delaware law, the merger shall be a merger subject to the provisions of Section 17.11 of the Delaware Revised Uniform Limited Partnership Act. 4. Authority of Pioneer USA as General Partner. By obtaining the approval of the limited partners described in Section 2 of this Article, the partnership hereby extends the power of attorney granted to Pioneer USA pursuant to this Agreement to permit Pioneer USA to execute the merger agreement described in the Proxy Statement/ Prospectus and the merger amendment contemplated by this Article on behalf of the limited partners. Pioneer USA shall be authorized, at such time in its full discretion as it deems appropriate, to execute, acknowledge, verify, deliver, file and record, for and in the name and on behalf of the partnership, Pioneer USA and the limited partners, any and all documents, agreements, certificates and instruments, and shall do and perform any and all acts required by applicable law or which Pioneer USA deems necessary or advisable in order to give effect to this Article and the transactions contemplated herein, including, but not limited to, the merger. 5. This Article Controlling. The provisions of this Article shall control over all other provisions of this Agreement. E-3 165 Except as herein expressly amended, all other terms and provisions of this Agreement shall remain in full force and effect. APPROVAL OF COUNSEL TO LIMITED PARTNERS FOR EACH PARTNERSHIP: RESOLVED: That the selection of Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and, as to matters of Texas law, Arter & Hadden LLP of Dallas, Texas, as special legal counsel for the limited partners of the partnership for the limited purpose of rendering the legal opinion described in the proxy statement/prospectus under "The Merger of Each Partnership -- Legal Opinion for Limited Partners" be and hereby is approved by Pioneer USA, on behalf of the partnership, and the limited partners of such partnership. RESOLVED: That the legal opinion delivered pursuant to the partnership agreement of the partnership as described in the proxy statement/prospectus under "The Merger of Each Partnership -- Legal Opinion for Limited Partners," in form and substance as set forth in Exhibit A to these merger proposals, be and hereby is approved as in form and substance satisfactory to the limited partners of such partnership in their reasonable judgment. E-4 166 EXHIBIT A TO APPENDIX E TO PROXY STATEMENT/PROSPECTUS [STRADLEY RONON LOGO] Stradley Ronon Stevens & Young, LLP 919 North Market Street, Suite 600 P.O. Box 2170 Wilmington, DE 19899-2170 September 20, 2001 To:Pioneer Natural Resources USA, Inc. Managing General Partner of The Limited Partners of the Limited Partnerships Named in the Proxy Statement/Prospectus Dated September 20, 2001 and Listed on Schedules A-1 and A-2 Hereto, On Behalf of the Limited Partners RE:Amendment to Limited Partnership Agreement; Merger with Pioneer Natural Resources USA, Inc. Ladies and Gentlemen: As special legal counsel for the limited partners (the "Limited Partners") of each of the limited partnerships listed on Schedule A-1 hereto (the "Texas Limited Partnerships") and on Schedule A-2 hereto (the "Delaware Limited Partnerships" and together with the Texas Limited Partnerships, each Texas Limited Partnership and Delaware Limited Partnership, individually, a "Limited Partnership" and collectively, the "Limited Partnerships"), we have been asked to render certain opinions of law in connection with the proposed amendment ("Amendment") to each Partnership Agreement (as defined below) and proposed merger ("Merger") of each Limited Partnership with and into Pioneer Natural Resources USA, Inc., a Delaware corporation ("Pioneer USA") pursuant to that certain Agreement and Plan of Merger dated as of September 20, 2001 (the "Merger Agreement") among Pioneer Natural Resources Company, a Delaware corporation ("Pioneer Parent"), Pioneer USA and each Limited Partnership. These opinions are issued in connection with the proxy statement/prospectus forming a part of Pioneer Parent's registration statement on Form S-4 (File No. 333-59094) (the "Registration Statement") relating to the registration of the issuance of its shares of common stock, $0.01 par value per share, in connection with the merger of each of the Limited Partnerships with and into Pioneer USA and related transactions. We note that our representation is limited solely to the issues that are the subject of opinions 1 and 2 set forth herein. For purposes of giving the opinions hereinafter set forth, our examination of documents has been limited to the examination of executed or conformed counterparts, or copies otherwise proved to our satisfaction, of the following: (a) Copies of the Agreement of Limited Partnership (and any amendment thereto) of each of the Limited Partnerships in the form as attached to the General Partner's Certificate (as defined below) (each, as amended, a "Partnership Agreement"); (b) Certified copies of the Certificate of Limited Partnership of each of the Delaware Limited Partnerships as filed in the Office of the Secretary of State of the State of Delaware; (c) General Partner's Certificate of Pioneer USA dated as of September 20, 2001 ("General Partner's Certificate"); E-5 167 (d) Appendix E to the Proxy Statement/Prospectus forming part of the Registration Statement, setting forth the proposed approvals by the Limited Partners of each Limited Partnership of (i) the Merger of such Limited Partnership, as provided in the Merger Agreement and (ii) the amendments to each Partnership Agreement to authorize the Merger of such Limited Partnership (collectively, the "Merger Proposals"); and (e) Appendix F to the Proxy Statement/Prospectus forming part of the Registration Statement, containing the Merger Agreement. For purposes of giving the opinions hereinafter set forth, we have not reviewed any documents, or any documents referred to or incorporated by reference in the documents we reviewed, other than the documents listed above. We assume that there are no agreements, understandings or usage of trade or course of prior dealing among the parties that would qualify the documents reviewed. We have conducted no independent factual investigation of our own but rather have relied solely upon the foregoing documents, the statements and information set forth therein, and the additional matters recited or assumed herein, all of which we assume to be true, complete and accurate in all material respects. With respect to all documents examined by us, we have assumed (i) that all signatures on such documents are genuine, (ii) that all documents submitted to us as originals are authentic, (iii) that all documents submitted to us as copies conform with the original copies of those documents, and (iv) the legal capacity of natural persons. For purposes of the opinions expressed herein, we have also assumed, with respect to each of the Limited Partnerships, (i) that such Limited Partnership's Partnership Agreement in the form attached to the General Partner's Certificate constitutes the entire agreement among the parties thereto with respect to the subject matter thereof, and that such Partnership Agreement is in full force and effect; (ii) the due authorization, execution and delivery of such Limited Partnership's Partnership Agreement by each of the parties thereto; (iii) that such Limited Partnership's Certificate of Limited Partnership was duly authorized, executed and delivered by the General Partner of such Limited Partnership and duly filed with the appropriate Secretary of State; (iv) that the representations and warranties of the parties to such Limited Partnership's Partnership Agreement are true and correct; (v) that such Limited Partnership is validly existing and no event of dissolution has occurred with respect to such Limited Partnership and no event of withdrawal from such Limited Partnership by the General Partner of such Limited Partnership has occurred; and(vi) that all acts necessary to be performed by each Partner of such Limited Partnership for its admission to the Limited Partnership have been done in accordance with such Limited Partnership's Partnership Agreement; and (vii) that the proposed Amendment to such Limited Partnership's Partnership Agreement will be approved by the limited partners of such Limited Partnership at the time of or before the vote by the limited partners of such Limited Partnership on the proposed Merger. This opinion is limited to the application of (i) the Internal Revenue Code of 1986, as amended (the "Code"), final regulations incorporated in Treasury Decisions issued under the Code ("Regulations"), rulings or procedures the Internal Revenue Service has issued, and court decisions interpreting the Code, Regulations, or administrative pronouncements, all of which as issued and effective on September 20, 2001, and which we deemed material to this opinion, and (ii) with respect to the Delaware Limited Partnerships, applicable Delaware law, including the Delaware Revised Uniform Partnership Act, 6 Del. C. Ch. 15, and the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. Ch. 17 (the "LP Act") (but excluding the securities law and environmental laws of the State of Delaware) to the matters set forth below which, in our experience, are the laws of the State of Delaware normally applicable to such matters and (iii) with respect to the Texas Limited Partnerships, Texas law, provided that with respect to matters of Texas law we have relied entirely upon the opinion of the firm of Arter & Hadden addressed to us and dated of even date herewith in the form attached hereto (the "Texas Opinion"). We have not been requested to and do not opine as to the applicability of the laws of any other jurisdiction. In rendering the opinions set forth herein, we have not reviewed and express no opinion as to the operation or effect of any laws, rules or regulations applicable to the assets owned by each of the Limited Partnerships. This opinion letter speaks only as of the date hereof and we do not undertake to update the opinions expressed herein for any change in law or fact that may occur after such date. Based upon the foregoing, and subject to the assumptions, qualifications, limitations and exceptions set forth herein, we are of the opinion that: 1. Neither the grant nor the exercise of the right to approve or disapprove (i) an amendment to the Partnership Agreement of a Limited Partnership or (ii) the merger of such Limited Partnership with and into Pioneer USA, as provided in the Merger Agreement, in each case as set forth in the Merger Proposals, by the Limited Partners of such Limited Partnership will adversely affect the federal income tax classification of such Limited Partnership or any of its Limited Partners; and E-6 168 2. Neither the grant nor the exercise of the right to approve or disapprove (i) an amendment to the Partnership Agreement of a Limited Partnership or (ii) the merger of such Limited Partnership with and into Pioneer USA, as provided in the Merger Agreement, in each case as set forth in the Merger Proposals, by the Limited Partners of such Limited Partnership will result in the loss of any Limited Partner's limited liability by virtue of such grant or exercise. The foregoing opinions are subject to the following additional exceptions and qualifications: (A) We express no opinion with respect to the limited liability of any Limited Partner who is, was or may become a General Partner of a Limited Partnership or a general partner of a named General Partner. (B) In giving opinion (2) with respect to the Texas Limited Partnerships, we note that the Texas Opinion is subject to the assumptions, limitations, qualifications and exceptions set forth therein. This opinion is for your benefit and may not be relied upon by any other person, or by you in any other context or for any other purpose, nor may copies hereof be delivered, distributed, published, quoted or otherwise communicated to any other person without our prior written consent. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and the references to us under the heading "Legal Matters" in the proxy statement/prospectus that forms a part of the Registration Statement. We also consent to the incorporation by reference of this consent into any subsequent registration statement filed pursuant to Rule 462(b) under 1933 Act in connection with the offering. In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the 1933 Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, STRADLEY, RONON, STEVENS & YOUNG, LLP By: /s/ ELLISA OPSTBAUM HABBART --------------------------------------- Ellisa Opstbaum Habbart, a Partner EOH/AGK/emc E-7 169 ARTER & HADDEN LLP ATTORNEYS AT LAW founded 1843 1717 Main Street, Suite 4100 Dallas, Texas 75201-4605 telephone 214.761.2100 facsimile 214.741.7139 September 20, 2001 Stradley Ronon Stevens & Young, LLP 919 North Market Street, Suite 600 P.O. Box 2170 Wilmington, DE 19899-2170 Ladies and Gentlemen: We have acted as special Texas counsel to you in connection with the delivery of your legal opinion to Pioneer Natural Resources USA, Inc., a Delaware corporation ("Pioneer USA") and the limited partners of those certain Texas limited partnerships set forth in Exhibit A hereto (each a "Partnership") in connection with the proposed amendments to each Partnership Agreement (as defined below) and the proposed merger (each, a "Merger") of each Partnership with and into Pioneer USA, pursuant to that certain Agreement and Plan of Merger dated as of September 20, 2001 (the "Merger Agreement") among Pioneer Natural Resources Company, a Delaware corporation ("Pioneer Parent"), Pioneer USA, each Partnership and certain other limited partnerships. This opinion is being delivered in support of your opinions to be included as Exhibit A of Appendix E ("Appendix E") to the Proxy Statement/Prospectus forming a part of Pioneer Parent's Registration Statement on Form S-4 (Registration No. 333-59094) (the "Registration Statement") relating to the registration of the issuance of shares of common stock, $.01 par value per share, of Pioneer Parent in the Mergers and other related mergers under the Securities Act of 1933, as amended (the "Securities Act"). A. BASIS OF OPINION. For purposes of this opinion, we have made such investigations as we deem necessary or appropriate and have reviewed and considered the following: 1. Copies of the Agreement of Limited Partnership of each Partnership and any amendments thereto, certified by Pioneer USA as each Partnership's sole or managing general partner, as applicable (each, as amended, a "Partnership Agreement"). 2. Appendix E to the Proxy Statement/Prospectus forming a part of the Registration Statement, setting forth the proposed approvals by the limited partners of each Partnership of (i) the Merger of such Partnership, as provided in the Merger Agreement and (ii) the amendments to each Partnership Agreement to authorize each Merger (collectively, the "Merger Proposals"). 3. Appendix F to the Proxy Statement/Prospectus forming a part of the Registration Statement, containing the Merger Agreement. 4. The Certificate of General Partner dated September 20, 2001, executed by Pioneer USA as the sale managing general partner of each Partnership. For the purpose of this opinion letter, the documents and information referred to in this Section A are herein collectively referred to as the "Documents." For purposes of giving the opinions hereinafter set forth, we have not reviewed any documents, or any documents referred to or incorporated by reference in the documents we reviewed, other than the documents listed above. In addition, we advise you that we have not received or reviewed the Certificate of Limited Partnership for each Partnership. We assume that there are no agreements, understandings or usage of trade or course of prior dealing among the parties that would qualify the documents reviewed. We have conducted no independent factual investigation of our own but rather have relied solely upon the foregoing documents, the statements and information set forth therein, and the additional matters recited or assumed herein, all of which we assume to be true, complete and accurate in all material respects. E-8 170 B. OPINION. Based upon our examination and consideration of the foregoing Documents, and reliance thereon, and subject to the assumptions, limitations, qualifications and exceptions, set forth in Section C, we are of the opinion that: Neither the grant nor the exercise of the right to approve or disapprove (i) an amendment to such Partnership's Partnership Agreement or (ii) the Merger of such Partnership, as provided in the applicable Merger Agreement, in each case as set forth in the Merger Proposals, by the limited partners of such Partnership will result in the loss of any limited partner's limited liability by virtue of such grant or exercise. C. ASSUMPTIONS, LIMITATIONS, QUALIFICATIONS AND EXCEPTIONS. The opinion expressed in Section B are based upon and subject to the further assumptions, limitations, qualifications and exceptions set forth below: 1. We have assumed without investigation the genuineness of all signatures and the authenticity of all Documents submitted to us as originals, the conformity to authentic original Documents of all Documents submitted to us as certified or photographic copies, the veracity of all Documents and the legal capacity of all natural persons executing such Documents. 2. We have assumed, with respect to each Partnership, that such Partnership is validly existing and that no event of dissolution has occurred with respect to such Partnership and no event of withdrawal from such Partnership by the general partner thereof has occurred. 3. The opinions expressed herein are specifically limited to the laws of the State of Texas, to present judicial interpretations thereof and to facts as they currently exist. 4. We express no opinion with respect to the limited liability of any limited partner who is, was or may become (a) a general partner of a Partnership or (b) a general partner of any general partner of a Partnership. 5. We express no opinions other than the opinion set forth in Section B. We bring to your attention the fact that this legal opinion is an expression of professional judgment and not a guaranty of result. This opinion is given as of the date hereof, and we assume no obligation to update or supplement such opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in laws or judicial decisions that may hereafter occur. This opinion is provided at your request and has been solely for your benefit and for the benefit of the limited partners of each Partnership and may not be used, circulated, quoted, given to any other person or otherwise referred to in connection with any other transaction, and no other person or entity shall be entitled to rely hereon without the express written consent of this firm. We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the references to our firm and this opinion contained in the Proxy Statement/Prospectus forming a part of the Registration Statement. We also consent to the incorporation by reference of this consent into any subsequent registration filed pursuant to Rule 462(b) under the Securities Act in connection with the offering. In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, Arter & Hadden LLP E-9 171 EXHIBIT A TEXAS LIMITED PARTNERSHIPS Parker & Parsley 81-I, Ltd. Parker & Parsley 81-II, Ltd. Parker & Parsley 82-I, Ltd. Parker & Parsley 82-II, Ltd. Parker & Parsley 82-III, Ltd. Parker & Parsley 83-A, Ltd. Parker & Parsley 83-B, Ltd. Parker & Parsley 84-A, Ltd. Parker & Parsley 85-A, Ltd. Parker & Parsley 85-B, Ltd. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley Selected 85 Private Investment, Ltd. Parker & Parsley 86-A, Ltd. Parker & Parsley 86-B, Ltd. Parker & Parsley 86-C, Ltd. Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 87-A Conv., Ltd. Parker & Parsley 87-A, Ltd. Parker & Parsley 87-B Conv., Ltd. Parker & Parsley 87-B, Ltd. Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley Private Investment 87, Ltd. E-10 172 APPENDIX F TO PROXY STATEMENT/PROSPECTUS AGREEMENT AND PLAN OF MERGER (DRILLING AND INCOME FUNDS) THIS AGREEMENT AND PLAN OF MERGER dated as of September 20, 2001 (this "Merger Agreement"), is entered into by and among Pioneer Natural Resources Company, a Delaware corporation ("Pioneer Parent"), Pioneer Natural Resources USA, Inc., a Delaware corporation and wholly-owned subsidiary of Pioneer Parent ("Pioneer USA"), and each of the limited partnerships referred to below (each, a "Partnership" and collectively, the "Partnerships"). RECITALS A. Pioneer USA is the sole or managing general partner of each of the following Partnerships:
STATE OF PARTNERSHIP NAME FORMATION ---------------- --------- Parker & Parsley 81-I, Ltd. ................................ Texas Parker & Parsley 81-II, Ltd. ............................... Texas Parker & Parsley 82-I, Ltd. ................................ Texas Parker & Parsley 82-II, Ltd. ............................... Texas Parker & Parsley 82-III, Ltd. .............................. Texas Parker & Parsley 83-A, Ltd. ................................ Texas Parker & Parsley 83-B, Ltd. ................................ Texas Parker & Parsley 84-A, Ltd. ................................ Texas Parker & Parsley 85-A, Ltd. ................................ Texas Parker & Parsley 85-B, Ltd. ................................ Texas Parker & Parsley Private Investment 85-A, Ltd. ............. Texas Parker & Parsley Selected 85 Private Investment, Ltd. ...... Texas Parker & Parsley 86-A, Ltd. ................................ Texas Parker & Parsley 86-B, Ltd. ................................ Texas Parker & Parsley 86-C, Ltd. ................................ Texas Parker & Parsley Private Investment 86, Ltd. ............... Texas Parker & Parsley 87-A Conv., Ltd. .......................... Texas Parker & Parsley 87-A , Ltd. ............................... Texas Parker & Parsley 87-B Conv., Ltd. .......................... Texas Parker & Parsley 87-B, Ltd. ................................ Texas Parker & Parsley Producing Properties 87-A, Ltd. ........... Texas Parker & Parsley Producing Properties 87-B, Ltd. ........... Texas Parker & Parsley Private Investment 87, Ltd. ............... Texas Parker & Parsley 88-A Conv., L.P. .......................... Delaware Parker & Parsley 88-A, L.P. ................................ Delaware Parker & Parsley 88-B Conv., L.P. .......................... Delaware Parker & Parsley 88-B, L.P. ................................ Delaware Parker & Parsley 88-C Conv., L.P. .......................... Delaware Parker & Parsley 88-C, L.P. ................................ Delaware Parker & Parsley Producing Properties 88-A, L.P. ........... Delaware Parker & Parsley Private Investment 88, L.P. ............... Delaware Parker & Parsley 89-A Conv., L.P. .......................... Delaware Parker & Parsley 89-A, L.P. ................................ Delaware Parker & Parsley 89-B Conv., L.P. .......................... Delaware Parker & Parsley 89-B, L.P. ................................ Delaware Parker & Parsley Private Investment 89, L.P. ............... Delaware Parker & Parsley 90-A Conv., L.P. .......................... Delaware Parker & Parsley 90-A, L.P. ................................ Delaware Parker & Parsley 90-B Conv., L.P. .......................... Delaware
F-1 173
STATE OF PARTNERSHIP NAME FORMATION ---------------- --------- Parker & Parsley 90-B, L.P. ................................ Delaware Parker & Parsley 90-C Conv., L.P. .......................... Delaware Parker & Parsley 90-C, L.P. ................................ Delaware Parker & Parsley Private Investment 90, L.P. ............... Delaware Parker & Parsley 90 Spraberry Private Development, L.P. .... Delaware Parker & Parsley 91-A, L.P. ................................ Delaware Parker & Parsley 91-B, L.P. ................................ Delaware
B. Each of P&P Employees 81-I, Ltd., a Texas limited partnership, P&P Employees 81-II, Ltd., a Texas limited partnership, P&P Employees 82-I, Ltd., a Texas limited partnership, P&P Employees 82-II, Ltd., a Texas limited partnership, P&P Employees 82-III, Ltd., a Texas limited partnership, P&P Employees 83-A, Ltd., a Texas limited partnership, P&P Employees 83-B, Ltd., a Texas limited partnership, and P&P Employees 84-A, Ltd., a Texas limited partnership (individually, the "Nonmanaging General Partner" and collectively, the "Nonmanaging General Partners"), is the nonmanaging general partner of Parker & Parsley 81-I, Ltd., Parker & Parsley 81-II, Ltd., Parker & Parsley 82-I, Ltd., Parker & Parsley 82-II, Ltd., Parker & Parsley 82-III, Ltd., Parker & Parsley 83-A, Ltd. Parker & Parsley 83-B, Ltd. and Parker & Parsley 84-A, Ltd., respectively. C. Pioneer USA is the sole general partner of each of the Nonmanaging General Partners and in such capacity has authority (i) to cause the Nonmanaging General Partner to perform its obligations under the partnership agreement of the respective Partnership; and (ii) to exercise on behalf of the Nonmanaging General Partner all of the rights and elections granted to such Nonmanaging General Partner by the respective Partnership. D. The board of directors of each of Pioneer Parent and Pioneer USA has determined that it is in the best interests of Pioneer Parent and Pioneer USA (in its individual capacity, as the sole or managing general partner of each Partnership and as the sole general partner of each Nonmanaging General Partner) to merge each Partnership with and into Pioneer USA and each such board of directors has approved the merger of each Partnership referred to below, upon the terms and subject to the conditions contained herein. E. Pioneer USA intends to solicit the vote of the limited partners of each Partnership holding at least a majority (or with respect to Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P. (each, a "Super-Majority Partnership"), at least 66 2/3%) of the outstanding limited partnership interests of the Partnership to approve the merger of the Partnership. Subject to certain limitations, upon consummation of the merger of each Partnership, the partners, other than Pioneer USA, will have the right to receive a number of shares of common stock, par value $0.01 per share, of Pioneer Parent together with associated rights to acquire Series A Junior Participating Preferred Stock (the common stock, together with the rights, the "Pioneer Parent Common Stock"). AGREEMENTS NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties hereto agree as follows: ARTICLE 1 THE MERGER OF EACH PARTNERSHIP 1.1 Merger of Each Partnership. At the Effective Time (as defined in Section 1.4), each Partnership shall be merged with and into Pioneer USA, the separate existence of the Partnership shall cease, and Pioneer USA, as the surviving corporation, shall continue to exist by virtue of and shall be governed by the laws of the State of Delaware. 1.2 Merger Value for Each Partnership; Pioneer Parent Common Stock Offered. (a) At the Effective Time, by virtue of the merger of each Partnership and without any action on the part of Pioneer USA or the other partners of the Partnership, each partnership interest outstanding immediately prior thereto shall be converted into the right to receive an amount of Pioneer Parent Common Stock allocated to the Partnership, which amount shall be determined in accordance with the merger value assigned to the Partnership pursuant to the procedures set forth herein and in the Proxy Statement/Prospectus (as defined in Section 4.3) and the procedures set forth in the Partnership's partnership agreement for allocating liquidation distributions as though the assets of the Partnership were sold for the merger value of the Partnership. The merger value for each Partnership is equal to the sum F-2 174 of the present value of estimated future net revenues from the Partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001 and determined as described in the Proxy Statement/Prospectus, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the Partnerships and less the cash distribution mailed on July 13, 2001, by the Partnership to its partners. The merger value for each Partnership will not be adjusted as of the Closing Date. The number of shares of Pioneer Parent Common Stock to be issued for each partnership interest of each Partnership will be based on (i) the Partnership's merger value divided by (ii) the average closing price of the Pioneer Parent Common Stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date scheduled for the special meeting for the Partnership. For purposes of illustration in the Proxy Statement/Prospectus, Pioneer Parent and Pioneer USA shall calculate the aggregate number of shares of Pioneer Parent Common Stock to be offered based on $18.00 per share of Pioneer Parent Common Stock. Pioneer Parent and Pioneer USA shall update the aggregate number of shares of Pioneer Parent Common Stock to be issued based on the average closing price as described in clause (ii) above before the date of the special meeting for each Partnership. The merger value assigned to each Partnership and the amount of Pioneer Parent Common Stock offered with respect to each $1,000 investment by the limited partners in the Partnership pursuant to the merger of the Partnership are set forth in the table entitled "Summary Table -- Merger Value and Amount of Initial Limited Partner Investment Repaid" in the Proxy Statement/Prospectus. (b) All partnership interests of each Partnership, when converted into the right to receive Pioneer Parent Common Stock, shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such partnership interests shall cease to have any rights with respect thereto, except the right to receive the amount of Pioneer Parent Common Stock to be delivered in consideration therefor. (c) The partnership interests, whether general or limited, in each Partnership held directly or indirectly by Pioneer USA shall be cancelled without any consideration being received therefor; provided, however, that as a result of the merger of each Partnership, Pioneer USA will own 100% of the properties of the Partnership, including properties attributable to its partnership interests in the Partnership. (d) No fractional shares of Pioneer Parent Common Stock will be issued. Each fractional share of Pioneer Parent Common Stock to be issued to a partner of a Partnership will be rounded up to the nearest whole share. (e) When any person has partnership interests in more than one Partnership that merges with Pioneer USA, Pioneer USA and Pioneer Parent may, at their sole discretion, aggregate the number of shares of Pioneer Parent Common Stock to be issued to that person before making the rounding and other adjustments provided in the preceding clause (d). (f) If any limited partner is indebted to Pioneer USA for any portion of the limited partner's original investment in the Partnership, Pioneer USA plans to apply the Pioneer Parent Common Stock that would otherwise be distributed to the limited partner upon completion of the merger of the Partnership against that limited partner's indebtedness. If a limited partner's indebtedness to Pioneer USA is less than the merger value allocated to limited partnership interests held by the limited partner, the limited partner shall receive Pioneer Parent Common Stock equal to the amount by which such merger value exceeds such indebtedness. If a limited partner's indebtedness to Pioneer USA is greater than the merger value allocated to the limited partnership interests held by the limited partner, Pioneer USA may collect the deficiency from the limited partner. (g) To the extent that Pioneer USA or a Partnership is required to withhold and pay over, or otherwise pay, any withholding or other tax (the "Required Withholding") with respect to a partner or former partner in a Partnership (the "Withholding Partner") as a result of the Withholding Partner's current or former participation in the Partnership, Pioneer USA or the Partnership shall be entitled to deduct and withhold (or cause to be deducted and withheld) the Required Holding from the merger consideration (including the Pioneer Parent Common Stock) otherwise payable to the Withholding Partner. In the event Pioneer USA or a Partnership withholds Pioneer Parent Common Stock in order to satisfy the Required Withholding with respect to a Withholding Partner, Pioneer USA or the Partnership, as appropriate, may, in its sole discretion, (i) sell such Pioneer Parent Common Stock and use the proceeds therefrom to satisfy the Required Withholding, (ii) hold such Pioneer Parent Common Stock as security for the satisfaction of the Required Withholding by the Withholding Partner, in which case the Pioneer Parent Common Stock shall be released to the Withholding Partner upon the full satisfaction of the Required Withholding by the Withholding Partner, or (iii) take such other reasonable action as is required or appropriate to satisfy the Required Withholding at the sole expense of the Withholding Partner. To the extent that amounts are so withheld or deducted (or caused to be withheld or deducted) by Pioneer USA or a Partnership, such amounts shall be treated for all purposes of this Merger Agreement as having been paid to the Withholding Partner. F-3 175 1.3 Closing. The closing of the merger of each Partnership (the "Closing") shall take place at the offices of Vinson & Elkins L.L.P., 3700 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, as soon as practicable after the fulfillment of the conditions referred to in Article 3, or at such other time and place as the parties shall agree (the date of such Closing being the "Closing Date"). 1.4 Effective Time of Merger of Each Partnership. Upon satisfaction of the conditions set forth in Article 3 hereof and as soon as practicable after the Closing, this Merger Agreement, or a certificate of merger setting forth the information required by, and otherwise in compliance with, Section 263 of the General Corporation Law of the State of Delaware (the "DGCL") and, if applicable, Section 17-211 of the Revised Uniform Limited Partnership Act of the State of Delaware (the "DRULPA") with respect to the merger of each Partnership, shall be delivered for filing with the Secretary of State of the State of Delaware. At such time, if applicable, a certificate of merger with respect to the merger of each Partnership setting forth the information required by, and otherwise in compliance with, Section 2.11 the Revised Limited Partnership Act of the State of Texas (the "TRLPA") shall be delivered for filing with the Secretary of State of the State of Texas. The merger of each Partnership shall become effective upon the later of (a) the day and at the time the Secretary of State of the State of Delaware files this Merger Agreement or such certificate of merger in compliance with Section 263 of the DGCL and, if applicable, Section 17-211 of the DRULPA, and (b) if applicable, the day and at the time the Secretary of State of the State of Texas files such certificate of merger in compliance with Section 2.11 of the TRLPA (the time of such effectiveness is herein called the "Effective Time"). Notwithstanding the foregoing, by action of its board of directors, either Pioneer Parent or Pioneer USA, in its individual capacity or as the sole general partner of each Partnership, may terminate this Merger Agreement at any time prior to the earlier of (a) the filing of this Merger Agreement or the certificate of merger with respect to the merger of the Partnership in compliance with Section 263 of the DGCL and, if applicable, Section 17-211 of the DRULPA with the Secretary of State of the State of Delaware and (b) if applicable, the filing of the certificate of merger with respect to the merger of the Partnership in compliance with Section 2.11 of the TRLPA with Secretary of State of the State of Texas. 1.5 Effect of Merger of Each Partnership. At the Effective Time of the merger of each Partnership, Pioneer USA, without further action, as provided by the laws of the State of Delaware and the State of Texas, as the case may be, shall succeed to and possess all the rights, privileges, powers, and franchises, of a public as well as of a private nature, of the Partnership; and all property, real, personal and mixed, and all debts due on whatsoever account, including subscriptions to shares, and all other choses in action, and all and every other interest, of or belonging to or due to the Partnership shall be deemed to be vested in Pioneer USA without further act or deed; and the title to any real estate, or any interest therein, vested in Pioneer USA or the Partnership shall not revert or be in any way impaired by reason of the merger of the Partnership. Such transfer to and vesting in Pioneer USA shall be deemed to occur by operation of law, and no consent or approval of any other person shall be required in connection with any such transfer or vesting unless such consent or approval is specifically required in the event of merger or consolidation by law or express provision in any contract, agreement, decree, order, or other instrument to which Pioneer USA or the Partnership is a party or by which either of them is bound. At and after the Effective Time, Pioneer USA shall be responsible and liable for all debts, liabilities, and duties of each Partnership, including franchise taxes, if any, which may be enforced against Pioneer USA to the same extent as if said debts, liabilities, and duties had been incurred or contracted by it. Neither the rights of creditors nor any liens upon the property of any Partnership or Pioneer USA shall be impaired by the merger of any Partnership. 1.6 Certificate of Incorporation and Bylaws. The certificate of incorporation of Pioneer USA before the merger of each Partnership shall be and remain the certificate of incorporation of Pioneer USA after the Effective Time, until the same shall thereafter be altered, amended, or repealed in accordance with law and Pioneer USA's certificate of incorporation. The bylaws of Pioneer USA as in effect at the Effective Time shall be and remain the bylaws of Pioneer USA, as the surviving corporation, until the same shall thereafter be altered, amended, or repealed in accordance with law, Pioneer USA's certificate of incorporation or such bylaws. 1.7 Pioneer USA Common Stock. At the Effective Time, each outstanding share of common stock of Pioneer USA shall remain outstanding and shall continue to represent one share of common stock of Pioneer USA. 1.8 Officers and Directors. At the Effective Time, each of the persons who was serving as an officer of Pioneer USA immediately prior to the Effective Time shall continue to be an officer of Pioneer USA and shall continue to serve in such capacity at the pleasure of the board of directors of Pioneer USA or, if earlier, until their respective death or resignation. At the Effective Time, each of the persons who was serving as a director of Pioneer USA immediately prior to the Effective Time shall continue to be a director of Pioneer USA, and each shall serve in such capacity until the next annual meeting of stockholders of Pioneer USA and until his or her successor is elected and qualified or, if earlier, until his death, resignation, or removal from office. F-4 176 1.9 Exchange of Partnership Interests for Pioneer Parent Common Stock. (a) Continental Stock Transfer & Trust Company shall act as the transfer and exchange agent (in such capacity, the "Transfer Agent") in connection with the issuance of certificates representing shares of Pioneer Parent Common Stock pursuant to Section 1.2. (b) The Transfer Agent shall mail certificates representing shares of Pioneer Parent Common Stock to the partners of record, other than Pioneer USA, of each Partnership promptly following the Closing Date in payment of the merger consideration. Limited partners and Nonmanaging General Partners of each Partnership will not be required to surrender partnership interest certificates to receive the Pioneer Parent Common Stock. (c) If any certificate representing shares of Pioneer Parent Common Stock is to be issued in a name other than that in which the limited partnership interests cancelled in exchange therefor are registered, it shall be a condition of the issuance thereof that the person requesting such exchange shall pay to the Transfer Agent any transfer or other taxes required by reason of the issuance of a certificate representing shares of Pioneer Parent Common Stock in any name other than that of the registered holder of the cancelled limited partnership interests, or otherwise required, or shall establish to the satisfaction of the Transfer Agent that such tax has been paid or is not payable. (d) After the Closing Date, there shall not be any further registration of transfers on the transfer books of any Partnership of the partnership interests that were issued and outstanding immediately before the Closing Date and were converted into the right to receive Pioneer Parent Common Stock. If, after the Closing Date, certificates representing partnership interests of a Partnership are presented, they shall be exchanged for Pioneer Parent Common Stock, all as provided in this Article. ARTICLE 2 REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties of Each Partnership. Each Partnership hereby represents and warrants to Pioneer Parent and Pioneer USA as follows: (a) Formation; Qualification. The Partnership is a limited partnership duly formed under the DRULPA or TRLPA, as applicable, and is validly existing and in good standing under the laws of the State of Delaware or the State of Texas, as applicable. The Partnership has all requisite partnership power and authority to own, operate or lease its properties and to carry on its business as now being conducted. The Partnership is duly qualified to do business as a foreign limited partnership and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary. (b) Capitalization. All of the outstanding partnership interests of the Partnership are free of all liens, encumbrances, defects and preemptive rights and are fully paid. Except as described in the Proxy Statement/ Prospectus, there are no outstanding subscriptions, options or other arrangements or commitments obligating the Partnership to issue any additional partnership interests. (c) No Conflicts. Assuming this Merger Agreement is approved by the requisite vote of the limited partners of the Partnership (with respect to Parker & Parsley 85-A, Ltd., Parker & Parsley 85-B, Ltd., Parker & Parsley Private Investment 85-A, Ltd., Parker & Parsley Selected 85 Private Investment, Ltd., Parker & Parsley Private Investment 86, Ltd., Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P. (each, a "Special Vote Partnership"), excluding Pioneer USA and its affiliates), consummation of the transactions contemplated hereby and compliance with the terms and provisions of this Merger Agreement will not conflict with, result in a breach of, require notice under or constitute a default under (i) its certificate of limited partnership or partnership agreement, (ii) any material judgment, order, injunction, decree or ruling of any court or governmental authority or (iii) any material agreement, indenture or instrument to which the Partnership is a party. (d) Authority, Authorization and Enforceability. The Partnership has all requisite power and authority to enter into and perform the provisions of this Merger Agreement. The execution and delivery of this Merger Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary partnership action on the part of the Partnership other than the approval of its limited partners (with respect to each Special Vote Partnership, excluding Pioneer USA and its affiliates). Subject to such approval, this Merger Agreement has been duly executed and delivered by the Partnership and constitutes a valid and binding obligation of the Partnership enforceable in accordance with its terms. F-5 177 (e) SEC Reports; Financial Statements. (i) With respect to each of Reporting Partnership (as defined below), the Partnership's (A) Annual Report on Form 10-K for the year ended December 31, 2000, (B) Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, and (C) all other reports or registration statements filed with the Securities and Exchange Commission (the "SEC") since December 31, 2000 (collectively, the "Partnership's SEC Reports") (1) were prepared in accordance with the applicable requirements of the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"), and (2) as of their respective dates, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. (ii) Each of the financial statements of the Partnership for the year ended December 31, 2000 and for the six months ended June 30, 2001 contained in the Partnership's supplement to the Proxy Statement/Prospectus and, with respect to each Reporting Partnership, in the Partnership's SEC Reports has been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and each fairly presents the financial position of the Partnership as of the respective dates thereof and the results of operations and cash flows of the Partnership for the periods indicated, except that the unaudited interim financial statements are subject to normal and recurring year-end adjustments that are not expected to be material in amount. (iii) For purposes hereof, the term "Reporting Partnership" means: Parker & Parsley 82-I, Ltd., Parker & Parsley 82-II, Ltd., Parker & Parsley 83-A, Ltd., Parker & Parsley 83-B, Ltd., Parker & Parsley 84-A, Ltd., Parker & Parsley 85-A, Ltd., Parker & Parsley 85-B, Ltd., Parker & Parsley 86-A, Ltd., Parker & Parsley 86-B, Ltd., Parker & Parsley 86-C, Ltd., Parker & Parsley 87-A, Ltd., Parker & Parsley 87-B, Ltd., Parker & Parsley Producing Properties 87-A, Ltd., Parker & Parsley Producing Properties 87-B, Ltd., Parker & Parsley 88-A, L.P., Parker & Parsley 88-B, L.P., Parker & Parsley Producing Properties 88-A, L.P., Parker & Parsley 89-A, L.P., Parker & Parsley 90-A L.P., Parker & Parsley 90-B Conv., L.P., Parker & Parsley 90-B, L.P., Parker & Parsley 90-C Conv., L.P., Parker & Parsley 90-C, L.P., Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P. (f) No Material Adverse Change. Since June 30, 2001, the Partnership has conducted its operations in the ordinary and usual course of business and has paid all of its obligations as they have become due; and the business of the Partnership has not undergone any material adverse change since such date. (g) Accuracy of Information. None of the information supplied or to be supplied by the Partnership for inclusion in the Proxy Statement/Prospectus, as amended or supplemented, will, at the time of the mailing of the Proxy Statement/Prospectus, the time of the special meeting of the limited partners of the Partnership (each, a "Special Meeting") or the Closing Date, be false or misleading with respect to any material fact, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2.2 Representations and Warranties of Pioneer USA. Pioneer USA hereby represents and warrants to Pioneer Parent and each Partnership as follows: (a) Organization; Qualification. Pioneer USA is a corporation duly formed under the DGCL and is validly existing and in good standing under the laws of the State of Delaware. Pioneer USA has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. Pioneer USA is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary. (b) No Conflicts. Consummation of the transactions contemplated hereby and compliance with the terms and provisions of this Merger Agreement will not conflict with, result in a breach of, require notice under or constitute a default under (i) its certificate of incorporation or bylaws, (ii) any material judgment, order, injunction, decree or ruling of any court or governmental authority or (iii) any material agreement, indenture or instrument to which Pioneer USA is a party. (c) Authority, Authorization and Enforceability. Pioneer USA has all requisite corporate power and authority to execute and deliver this Merger Agreement and to perform the provisions of this Merger Agreement. The F-6 178 execution and delivery of this Merger Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Pioneer USA. This Merger Agreement has been duly executed and delivered by Pioneer USA and constitutes a valid and binding obligation of Pioneer USA enforceable in accordance with its terms. (d) No Material Adverse Change. Since June 30, 2001, Pioneer USA has conducted its operations in the ordinary and usual course of business and has paid all of its obligations as they have become due; and the business of Pioneer USA has not undergone any material adverse change since such date. (e) Accuracy of Information. None of the information supplied or to be supplied by Pioneer USA for inclusion in the Proxy Statement/Prospectus, as amended or supplemented, will, at the time of the mailing of the Proxy Statement/Prospectus, the time of the Special Meeting of each Partnership or the Closing Date, be false or misleading with respect to any material fact, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (f) Capacity as General Partner. Pioneer USA is the sole or managing general partner of each Partnership and is the sole general partner of each Nonmanaging General Partner. 2.3 Representations and Warranties of Pioneer Parent. Pioneer Parent hereby represents and warrants to Pioneer USA and each Partnership as follows: (a) Organization; Qualification. Pioneer Parent is a corporation duly formed under the DGCL and is validly existing and in good standing under the laws of the State of Delaware. Pioneer Parent has all requisite corporate power and authority to own, operate or lease its properties and to carry on its business as now being conducted. Pioneer Parent is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where the character of its properties owned, operated or leased, or the nature of its activities, makes such qualifications necessary. (b) No Conflicts. Consummation of the transactions contemplated hereby and compliance with the terms and provisions of this Merger Agreement will not conflict with, result in a breach of, require notice under or constitute a default under (i) its certificate of incorporation or bylaws, (ii) any material judgment, order, injunction, decree or ruling of any court or governmental authority or (iii) any material agreement, indenture or instrument to which Pioneer Parent is a party. (c) Authority, Authorization and Enforceability. Pioneer Parent has all requisite corporate power and authority to execute and deliver this Merger Agreement and to perform the provisions of this Merger Agreement. The execution and delivery of this Merger Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Pioneer Parent. This Merger Agreement has been duly executed and delivered by Pioneer Parent and constitutes a valid and binding obligation of Pioneer Parent enforceable in accordance with its terms. When issued in accordance with this Merger Agreement, the shares of Pioneer Parent Common Stock will be validly issued, fully paid and nonassessable and not subject to preemptive rights. (d) SEC Reports; Financial Statements. (i) Pioneer Parent's (A) Annual Report on Form 10-K for the year ended December 31, 2000, (B) Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, and (C) all other reports or registration statements filed with the SEC since December 31, 2000 (collectively, "Pioneer Parent's SEC Reports") (1) were prepared in accordance with the applicable requirements of the Securities Act and the Exchange Act, and (2) as of their respective dates, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. (ii) Each of the financial statements of Pioneer Parent for the year ended December 31, 2000 and for the six months ended June 30, 2001 contained in Pioneer Parent's SEC Reports has been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and each fairly presents the financial position of Pioneer Parent as of the respective dates thereof and the results of operations and cash flows of Pioneer Parent for the periods indicated, except that the unaudited interim financial statements are subject to normal and recurring year-end adjustments that are not expected to be material in amount. F-7 179 (e) No Material Adverse Change. Since June 30, 2001, Pioneer Parent has conducted its operations in the ordinary and usual course of business and has paid all of its obligations as they have become due; and the business of Pioneer Parent has not undergone any material adverse change since such date. (f) Accuracy of Information. None of the information supplied or to be supplied by Pioneer Parent for inclusion in the Proxy Statement/Prospectus, as amended or supplemented, will, at the time of the mailing of the Proxy Statement/Prospectus, the time of the Special Meeting of each Partnership or the Closing Date, be false or misleading with respect to any material fact, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. ARTICLE 3 CONDITIONS PRECEDENT TO THE MERGER OF EACH PARTNERSHIP 3.1 Conditions to Each Party's Obligations to Effect the Merger of Each Partnership. The respective obligations of each party to effect the merger of each Partnership shall be subject to the fulfillment (or waiver in whole or in part by the intended beneficiary thereof in its sole discretion) at or prior to the Closing Date of the following conditions: (a) This Merger Agreement, an amendment to the partnership agreement of each Partnership to permit the merger of such Partnership (the "Merger Amendment"), the selection of special counsel for the limited partners and that counsel's legal opinion referred to in Section 3.1(c) shall have been approved by the limited partners (with respect to each Special Vote Partnership, excluding Pioneer USA and its affiliates) holding at least a majority (or, with respect to each Super-Majority Partnership, at least 66 2/3%) of the outstanding limited partnership interests voting in person or by proxy at the Special Meetings at which a quorum is present, with respect to each merger. (b) Pioneer USA shall have received from Robert A. Stanger & Co., Inc. a written opinion for inclusion in the Proxy Statement/Prospectus satisfactory in form and substance to Pioneer USA and substantially to the effect that, as of the date of that opinion, the merger value for each Partnership and the allocation of the merger value of the Partnership (1) to the limited partners of the Partnership as a group, (2) to the general partners of the Partnership as a group, (3) to Pioneer USA as the managing or sole general partner of the Partnership, (4) to the unaffiliated limited partners of the Partnership as a group and (5) to the unaffiliated limited partners of the Nonmanaging General Partner, if any, of the Partnership as a group, is fair to the unaffiliated limited partners of the Partnership and the unaffiliated limited partners of the Nonmanaging General Partner, if any, of the Partnership, from a financial point of view. Such opinion shall not have been withdrawn prior to the Closing Date, unless a replacement opinion or opinions of an investment banking firm or firms satisfactory to Pioneer USA to a similar effect has been received by Pioneer USA and has not been withdrawn. (c) The receipt, on or prior to the Closing Date, by Pioneer USA of the opinion of special legal counsel for the limited partners pursuant to the partnership agreement of each Partnership. (d) No provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the merger of any Partnership and the transactions related thereto. (e) No suit, action or proceeding shall have been filed or otherwise be pending against Pioneer Parent, Pioneer USA or any officer, director or affiliate of Pioneer Parent or Pioneer USA challenging the legality or any aspect of the merger of any Partnership or the transactions related thereto. (f) The shares of Pioneer Parent Common Stock issuable upon the merger of each Partnership pursuant to this Merger Agreement shall have been authorized for listing on the New York Stock Exchange and the Toronto Stock Exchange upon official notice of issuance. (g) The parties to the merger of each Partnership having made all filings and registrations with, and notifications to, all third parties, including, without limitation, lenders and all appropriate regulatory authorities, required for consummation of the transactions contemplated by this Merger Agreement (other than the filing and recordation of appropriate merger documents required by the DGCL, the DRULPA and the TRLPA, as applicable), and all approvals and authorizations and consents of all third parties, including, without limitation, lenders and all regulatory authorities, required for consummation of the transactions contemplated by this Merger Agreement shall have been received and shall be in full force and effect, except for such filings, registrations, notifications, approvals, authorizations and consents, the failure of which to make or obtain would not have a material adverse effect on the business or financial condition of Pioneer Parent, Pioneer USA or any Partnership. F-8 180 (h) The absence of any opinion of counsel that the exercise by the limited partners of any Partnership of the right to approve the merger of such Partnership is not permitted under applicable state law. 3.2 Conditions to Obligations of Pioneer Parent to Effect the Merger of Each Partnership. The obligations of Pioneer Parent to effect the merger of each Partnership shall be subject to the fulfillment (or waiver in whole or in part by the intended beneficiary thereof in its sole discretion), at or prior to the Closing Date, of the following additional conditions: (a) Pioneer USA and each Partnership shall have performed in all material respects their respective agreements contained in this Merger Agreement required to be performed at or prior to the Closing Date. (b) The representations and warranties of Pioneer USA and each Partnership contained in this Merger Agreement shall be true and correct in all material respects at and as of the Closing Date as if made at and as of such time unless they relate to another specified time. 3.3 Conditions to Obligations of Pioneer USA and Each Partnership to Effect the Merger of Such Partnership. The obligations of Pioneer USA and each Partnership to effect the merger of such Partnership shall be subject to the fulfillment (or waiver in whole or in part by the intended beneficiary thereof in its sole discretion) at or prior to the Closing Date of the following additional conditions: (a) Pioneer Parent shall have performed in all material respects its agreements contained in this Merger Agreement required to be performed at or prior to the Closing Date. (b) The representations and warranties of Pioneer Parent contained in this Merger Agreement shall be true and correct in all material respects at and as of the Closing Date as if made at and as of such time unless they relate to another specific time. ARTICLE 4 ADDITIONAL AGREEMENTS 4.1 Conduct of Business Pending the Merger of Each Partnership. Each Partnership covenants and agrees that, between the date of this Merger Agreement and the Closing Date, unless the other parties shall otherwise agree in writing or as otherwise contemplated in this Merger Agreement, it shall conduct its businesses only in the ordinary course of business and in a manner consistent with past practice, and it shall not take any action except for actions consistent with such practice, and it shall not make any distributions to its partners. Each Partnership shall use its reasonable best efforts to preserve intact its business organization, to keep available the services of its present officers, employees and consultants, and to preserve its relationships with customers, suppliers and other persons with which it has significant business dealings. 4.2 Special Meetings; Proxies. As soon as reasonably practicable after the execution of this Merger Agreement, Pioneer USA will take all action necessary to duly call, give notice of, convene and hold the Special Meetings to consider and vote upon approval of this Merger Agreement, the Merger Amendment, the selection of special legal counsel for the limited partners, that counsel's legal opinion referred to in Section 3.1(c) and the transactions contemplated hereby and thereby. Pioneer USA will use its reasonable best efforts to solicit from the limited partners proxies in favor of this Merger Agreement, the Merger Amendment, the selection of special legal counsel for the limited partners, that counsel's legal opinion referred to in Section 3.1(c) and the transactions contemplated hereby and thereby, and to take all other action necessary or advisable to secure any vote or consent of the limited partners of each Partnership required by the partnership agreement of the Partnership or this Merger Agreement or applicable law to effect the merger of the Partnership. 4.3 Proxy Statement/Prospectus. Pioneer Parent and Pioneer USA shall file with the SEC a registration statement that includes a preliminary proxy statement/prospectus for each Special Meeting (the definitive form of such proxy statement/prospectus is referred to as the "Proxy Statement/Prospectus"). Pioneer Parent and Pioneer USA shall use all reasonable commercial efforts to have the registration statement declared effective by the SEC as promptly as practicable. Pioneer Parent and Pioneer USA shall cause the Proxy Statement/Prospectus to be mailed to the limited partners of each Partnership as soon as practicable thereafter in accordance with applicable federal and state law. 4.4 Authorization for Shares and Stock Exchange Listing. Prior to the Effective Time, Pioneer Parent and Pioneer USA shall have taken all action necessary to permit Pioneer Parent to issue the number of shares of Pioneer Parent Common Stock required to be issued pursuant to this Merger Agreement. Each of Pioneer Parent and F-9 181 Pioneer USA shall use its commercially reasonable efforts to cause the shares of Pioneer Parent Common Stock to be issued in the merger of each Partnership to be approved for listing on the New York Stock Exchange and the Toronto Stock Exchange, subject to official notice of issuance, prior to the Closing Date. 4.5 Additional Agreements. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable commercial efforts to obtain in a timely manner all necessary waivers, consents and approvals and to effect all necessary registrations and filings, and to use all reasonable commercial efforts to take, or cause to be taken, all other actions and to do, or cause to be done, all other things necessary, proper or advisable under applicable laws and regulations to consummate and make effective as promptly as practicable the transactions contemplated by this Merger Agreement. ARTICLE 5 TERMINATION 5.1 Termination. This Merger Agreement may be terminated and the merger of any Partnership contemplated hereby may be abandoned, in whole or in part, at any time prior to the Effective Time, whether before or after approval of the merger of the Partnership by its limited partners (with respect to each Special Vote Partnership, excluding Pioneer USA and its affiliates): (a) By mutual written consent of the parties; (b) By any party, if: (i) there shall be any applicable law, rule or regulation that makes consummation of the merger of any Partnership illegal or otherwise prohibited or if any judgment, injunction, order or decree enjoining any party from consummating the merger of any Partnership is entered and such judgment, injunction, order or decree shall have become final and non-appealable; (ii) at the Special Meeting of each Partnership or at any adjournment or postponement thereof, the approval of the limited partners of the Partnership referred to in Section 3.1(a) shall not have been obtained by reason of the failure to obtain the requisite vote; or (iii) there shall be any pending suit, action or proceeding filed against Pioneer Parent, Pioneer USA, any Partnership or any officer, director or affiliate of Pioneer Parent or Pioneer USA challenging the legality or any aspect of the merger of any Partnership or the transactions related thereto; (c) By Pioneer Parent, if either Pioneer USA or any Partnership shall have failed to perform its agreements and covenants contained herein, which failure has a material adverse effect on Pioneer USA or such Partnership, as the case may be, or materially and adversely affects the transactions contemplated by this Merger Agreement; (d) By Pioneer USA or any Partnership with respect to the Partnership's merger, if Pioneer Parent shall have failed to perform its agreements and covenants contained herein, which failure has a material adverse effect on Pioneer USA or such Partnership, as the case may be, or materially and adversely affects the transactions contemplated by this Merger Agreement; (e) By Pioneer Parent or Pioneer USA, pursuant to Section 1.4 hereof; (f) By Pioneer USA, if Pioneer USA, after considering the written advice of outside legal counsel, determines in good faith that termination of this Merger Agreement is required for Pioneer USA's board of directors to comply with its fiduciary duties to its sole stockholder or to any Partnership imposed by applicable law; or (g) By Pioneer Parent, if there shall have occurred any event, circumstance, condition, development or occurrence causing, resulting in or having, or reasonably expected to cause, result in or have, a material adverse effect (i) on any Partnership's business, operations, properties (taken as a whole), condition (financial or otherwise), results of operations, assets (taken as a whole), liabilities, cash flows or prospects, (ii) on market prices for oil and gas prevailing generally in the oil and gas industry since the date of determination of the oil and gas commodity prices used in the determination of the merger value for each Partnership, (iii) on the price of Pioneer Parent Common Stock or (iv) on the oil and gas industry generally. 5.2 Effect of Termination. In the event of termination of this Merger Agreement by a party as provided in Section 5.1, written notice thereof shall promptly be given to the other parties and this Merger Agreement shall forthwith F-10 182 terminate without further action by any of the parties hereto. If this Merger Agreement is terminated as so provided, there shall be no liabilities or obligations hereunder on the part of any party hereto except as provided in Section 6.13 and except that nothing herein shall relieve any party hereto from liability for any breach of this Merger Agreement. ARTICLE 6 MISCELLANEOUS 6.1 Headings. The headings contained in this Merger Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Merger Agreement. 6.2 Amendment. This Merger Agreement may be supplemented, amended or modified by an instrument in writing signed by Pioneer Parent and Pioneer USA (on behalf of itself and as (a) the sole or managing general partner of each Partnership, (b) the sole general partner of each Nonmanaging General Partner and (c) attorney-in-fact for the limited partners of each Partnership) at any time prior to the Closing Date; provided, however, that after approval by the limited partners of each Partnership (with respect to each Special Vote Partnership, excluding Pioneer USA and its affiliates) of this Merger Agreement, the Merger Amendment, the selection of special legal counsel for the limited partners and that counsel's legal opinion referred to in Section 3.1(c), no amendment may be made which would adversely change the type or amount of, or the method for determining, the consideration to be received upon consummation of the merger of each Partnership or which would in any other way materially and adversely affect the rights of such limited partners (other than a termination of this Merger Agreement or abandonment of the merger of any Partnership). 6.3 Waiver. At any time prior to the Closing Date, the parties hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver shall not operate as an extension or waiver of, or estoppel with respect to, any subsequent failure of compliance or other failure. Any agreement on the part of a party hereto to any such extension or waiver shall be valid against such party if set forth in an instrument in writing signed by such party. 6.4 Expiration of Representations and Warranties. All representations and warranties made pursuant to this Merger Agreement shall expire with, and be terminated and extinguished by, the merger of each Partnership on the Closing Date. 6.5 Notices. All notices and other communications to be given or made hereunder by any party shall be delivered by first class mail, or by personal delivery, postage or fees prepaid, (a) to Pioneer Parent at 5205 North O'Connor Boulevard, Suite 1400, Irving, Texas 75039, Attn: Scott D. Sheffield, with a copy to Vinson & Elkins L.L.P., 3700 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, Attn: Robert L. Kimball, and (b) to the other parties at Pioneer Natural Resources USA, Inc., 5205 North O'Connor Boulevard, Suite 1400, Irving, Texas 75039, Attn: Mark L. Withrow, with a copy to Sayles, Lidji & Werbner, 4400 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270, Attn: Brian M. Lidji. 6.6 Counterparts. This Merger Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 6.7 Severability. If any term or other provision of this Merger Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Merger Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. 6.8 Entire Agreement. This Merger Agreement, including the documents and instruments referred to herein, constitutes the entire agreement and supersedes all other prior agreements and undertakings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof. 6.9 Remedies. Except as otherwise expressly provided herein, this Merger Agreement is not intended to confer upon any other person any rights or remedies hereunder. 6.10 Assignment. This Merger Agreement shall not be assigned by operation of law or otherwise without the consent of all parties hereto. 6.11 No Implied Waiver. Except as expressly provided in this Merger Agreement, no course of dealing among the parties hereto and no delay by any of them in exercising any right, power or remedy conferred herein or now or hereafter F-11 183 existing at law or in equity, by statute or otherwise, shall operate as a waiver of, or otherwise prejudice, any such right, power or remedy. 6.12 Governing Law. Except to the extent that TRLPA is mandatorily applicable, this Merger Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of law) as to all matters. 6.13 Expenses. Except as otherwise provided herein, to the extent the merger of a Partnership is completed, that participating Partnership shall pay its pro rata share, based on its reserve value, of the aggregate estimated expenses and fees to be incurred in connection with the merger of each Partnership with and into Pioneer USA. Pioneer Parent shall pay (a) the estimated expenses and fees otherwise allocable to any nonparticipating Partnership and (2) any expenses and fees actually incurred in excess of $2.0 million. In addition, if Pioneer Parent terminates this Merger Agreement or abandons the merger of any Partnership pursuant to Section 5.1, Pioneer Parent shall pay all estimated expenses and fees of such Partnership incurred in connection with the merger of such Partnership before such termination or abandonment. 6.14 Liquidation. Each Partnership, Pioneer Parent and Pioneer USA intend and agree that the merger of each Partnership shall be treated as a liquidation of the Partnership into Pioneer USA pursuant to Section 332 of the Internal Revenue Code of 1986, as amended, and shall make all declarations and filings necessary to accomplish such intent and liquidation. IN WITNESS WHEREOF, each of the parties hereto has executed this Merger Agreement as of the date first written above. PIONEER NATURAL RESOURCES COMPANY By: /s/ Scott D. Sheffield --------------------------------------- Scott D. Sheffield Chairman of the Board, President and Chief Executive Officer PIONEER NATURAL RESOURCES USA, INC. By: /s/ Mark L. Withrow --------------------------------------- Mark L. Withrow Executive Vice President, General Counsel and Secretary F-12 184 PARTNERSHIPS: Parker & Parsley 81-I, Ltd. Parker & Parsley 81-II, Ltd. Parker & Parsley 82-I, Ltd. Parker & Parsley 82-II, Ltd. Parker & Parsley 82-III, Ltd. Parker & Parsley 83-A, Ltd. Parker & Parsley 83-B, Ltd. Parker & Parsley 84-A, Ltd. Parker & Parsley 85-A, Ltd. Parker & Parsley 85-B, Ltd. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley Selected 85 Private Investment, Ltd. Parker & Parsley 86-A, Ltd. Parker & Parsley 86-B, Ltd. Parker & Parsley 86-C, Ltd. Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 87-A Conv., Ltd. Parker & Parsley 87-A , Ltd. Parker & Parsley 87-B Conv., Ltd. Parker & Parsley 87-B, Ltd. Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley Private Investment 87, Ltd. Parker & Parsley 88-A Conv., L.P. Parker & Parsley 88-A, L.P. Parker & Parsley 88-B Conv., L.P. Parker & Parsley 88-B, L.P. Parker & Parsley 88-C Conv., L.P. Parker & Parsley 88-C, L.P. Parker & Parsley Producing Properties 88-A, L.P. Parker & Parsley Private Investment 88, L.P. Parker & Parsley 89-A Conv., L.P. Parker & Parsley 89-A, L.P. Parker & Parsley 89-B Conv., L.P. Parker & Parsley 89-B, L.P. Parker & Parsley Private Investment 89, L.P. Parker & Parsley 90-A Conv., L.P. Parker & Parsley 90-A, L.P. Parker & Parsley 90-B Conv., L.P. Parker & Parsley 90-B, L.P. Parker & Parsley 90-C Conv., L.P. Parker & Parsley 90-C, L.P. Parker & Parsley Private Investment 90, L.P. Parker & Parsley 90 Spraberry Private Development, L.P. Parker & Parsley 91-A, L.P. Parker & Parsley 91-B, L.P. By: Pioneer Natural Resources USA, Inc., as the sole or managing general partner of each Partnership By: /s/ Mark L. Withrow ------------------------------------ Mark L. Withrow Executive Vice President, General Counsel and Secretary By: Pioneer Natural Resources USA, Inc., as the sole general partner of each Nonmanaging General Partner By: /s/ Mark L. Withrow ------------------------------------ Mark L. Withrow Executive Vice President, General Counsel and Secretary By: Pioneer Natural Resources USA, Inc., as attorney-in-fact for the limited partners of each Partnership By: /s/ Mark L. Withrow ------------------------------------ Mark L. Withrow Executive Vice President, General Counsel and Secretary F-13 185 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 81-I, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 81-I, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 81-I, Ltd.: o A table containing: - the aggregate initial investment by the limited partners - the aggregate historical limited partner distributions through July 31, 2001 - the merger value attributable to partnership interests of limited partners, excluding Pioneer USA - the merger value per $1,000 limited partner investment - the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 - the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 - the going concern value per $1,000 limited partner investment - the liquidation value per $1,000 limited partner investment - the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: - the legal opinion for the limited partners - the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 186 PARKER & PARSLEY 81-I, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 7,410 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 4,869 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 654 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 93.68 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.63 times the past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 25.01 -- as of December 31, 2000(c) $ 20.30 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 85.33 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 90.88 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 320
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent the estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership shall continue until terminated in accordance with the applicable provisions of its partnership agreement. -2- 187 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 188 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 102,047 $ 38,546 Accounts receivable - oil and gas sales 50,689 63,269 ---------- ---------- Total current assets 152,736 101,815 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,245,897 5,245,144 Accumulated depletion (5,146,166) (5,142,190) ---------- ---------- Net oil and gas properties 99,731 102,954 ---------- ---------- $ 252,467 $ 204,769 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 9,658 $ 8,817 Partners' capital: General partners 57,505 45,564 Limited partners (1,482 interests) 185,304 150,388 ---------- ---------- 242,809 195,952 ---------- ---------- $ 252,467 $ 204,769 ========== ==========
The financial information included as of June 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. 2 189 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 103,562 $ 97,018 $ 211,753 $ 191,199 Interest 719 795 1,438 1,358 -------- -------- -------- -------- 104,281 97,813 213,191 192,557 -------- -------- -------- -------- Costs and expenses: Oil and gas production 40,997 44,490 85,961 85,156 General and administrative 3,109 3,731 7,966 6,652 Depletion 2,085 2,067 3,976 3,685 -------- -------- -------- -------- 46,191 50,288 97,903 95,493 -------- -------- -------- -------- Net income $ 58,090 $ 47,525 $ 115,288 $ 97,064 ======== ======== ======== ======== Allocation of net income: General partners $ 14,835 $ 12,191 $ 29,163 $ 24,819 ======== ======== ======== ======== Limited partners $ 43,255 $ 35,334 $ 86,125 $ 72,245 ======== ======== ======== ======== Net income per limited partnership interest $ 29.18 $ 23.84 $ 58.11 $ 48.75 ======== ======== ======== ========
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. 3 190 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
General Limited partners partners Total --------- --------- --------- Balance at January 1, 2001 $ 45,564 $ 150,388 $ 195,952 Distributions (17,222) (51,209) (68,431) Net income 29,163 86,125 115,288 -------- -------- -------- Balance at June 30, 2001 $ 57,505 $ 185,304 $ 242,809 ======== ======== ========
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. 4 191 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ----------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 115,288 $ 97,064 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 3,976 3,685 Changes in assets and liabilities: Accounts receivable 12,580 (12,389) Accounts payable 841 843 -------- -------- Net cash provided by operating activities 132,685 89,203 -------- -------- Cash flows used in investing activities: Additions to oil and gas properties (753) (4,475) Cash flows used in financing activities: Cash distributions to partners (68,431) (96,204) -------- -------- Net increase (decrease) in cash 63,501 (11,476) Cash at beginning of period 38,546 38,716 -------- -------- Cash at end of period $ 102,047 $ 27,240 ======== ========
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. 5 192 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 81-I, Ltd. (the "Partnership") is a limited partnership organized in 1981 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 11% to $211,753 for the six months ended June 30, 2001 as compared to $191,199 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 4,203 barrels of oil, 2,165 barrels of natural gas liquids ("NGLs") and 12,725 mcf of gas were sold, or 8,489 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 4,524 barrels of oil, 2,512 barrels of NGLs and 12,333 mcf of gas were sold, or 9,092 BOEs. The average price received per barrel of oil increased $.40, or 1%, from $27.49 for the six months ended June 30, 2000 to $27.89 for the same period in 2001. The average price received per barrel of NGLs increased $1.43, or 10%, from $13.83 during the six months ended June 30, 2000 to $15.26 for the same period in 2001. The average price received per mcf of gas increased 86% from $2.60 during the six months ended June 30, 2000 to $4.83 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 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 six months ended June 30, 2001. 6 193 Costs and Expenses: Total costs and expenses increased to $97,903 for the six months ended June 30, 2001 as compared to $95,493 for the same period in 2000, an increase of $2,410, or 3%. This increase was due to increases in general and administrative expenses ("G&A"), production costs and depletion. Production costs were $85,961 for the six months ended June 30, 2001 and $85,156 for the same period in 2000 resulting in an $805 increase, or 1%. The increase was due to increased production taxes due to higher oil and gas prices, offset by less well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 20% from $6,652 for the six months ended June 30, 2000 to $7,966 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $3,976 for the six months ended June 30, 2001 as compared to $3,685 for the same period in 2000, an increase of $291, or 8%. This increase was the result of a decline in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 321 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 7% to $103,562 for the three months ended June 30, 2001 as compared to $97,018 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs and an increase in production, offset by a decline in the average price received for oil. For the three months ended June 30, 2001, 2,046 barrels of oil, 1,395 barrels of NGLs and 7,163 mcf of gas were sold, or 4,635 BOEs. For the three months ended June 30, 2000, 2,122 barrels of oil, 1,295 barrels of NGLs and 6,231 mcf of gas were sold, or 4,456 BOEs. The average price received per barrel of oil decreased $.67, or 2%, from $27.86 for the three months ended June 30, 2000 to $27.19 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.32, or 10%, from $13.13 during the three months ended June 30, 2000 to $14.45 for the same period in 2001. The average price received per mcf of gas increased 16% to $3.88 during the three months ended June 30, 2001 from $3.35 during the same period in 2000. Costs and Expenses: Total costs and expenses decreased to $46,191 for the three months ended June 30, 2001 as compared to $50,288 for the same period in 2000, a decrease of $4,097, or 8%. This decrease was due to declines in production costs and G&A, offset by an increase in depletion. Production costs were $40,997 for the three months ended June 30, 2001 and $44,490 for the same period in 2000 resulting in a $3,493 decrease, or 8%. The decrease was due to less well maintenance costs. During this period, G&A decreased 17%, from $3,731 for the three months ended June 30, 2000 to $3,109 for the same period in 2001, primarily due to lower audit and tax expenses. Depletion was $2,085 for the three months ended June 30, 2001 as compared to $2,067 for the same period in 2000, an increase of $18. 7 194 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $43,482 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $20,634 and a reduction in working capital of $24,967, offset by an increase in production costs of $805 and G&A expenses of $1,314. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $32,905 to oil and gas receipts, offset by $12,271 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices, offset by less well maintenance costs. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's investing activities for the six months ended June 30, 2001 and 2000 were for expenditures related to equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $68,431, of which $17,222 was distributed to the general partners and $51,209 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $96,204, of which $23,868 was distributed to the general partners and $72,336 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 8 195 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 196 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 81-I, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 81-I, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 81-I, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 197 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------------- ---------------- ASSETS Current assets: Cash $ 38,546 $ 38,716 Accounts receivable - oil and gas sales 63,269 34,340 ------------ ------------ Total current assets 101,815 73,056 ------------ ------------ Oil and gas properties - at cost, based on the successful efforts accounting method 5,245,144 5,240,632 Accumulated depletion (5,142,190) (5,133,431) ------------ ------------ Net oil and gas properties 102,954 107,201 ------------ ------------ $ 204,769 $ 180,257 ============= ============= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 8,817 $ 10,041 Partners' capital: General partners 45,564 38,221 Limited partners (1,482 interests) 150,388 131,995 ------------ ------------ 195,952 170,216 ------------ ------------ $ 204,769 $ 180,257 ============= =============
The accompanying notes are an integral part of these financial statements. 3 198 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 416,230 $ 260,652 $ 199,789 Interest 3,071 1,858 2,462 Gain on disposition of assets -- -- 67 --------- --------- --------- 419,301 262,510 202,318 --------- --------- --------- Costs and expenses: Oil and gas production 174,233 165,810 157,631 General and administrative 15,697 13,087 8,892 Impairment of oil and gas properties -- -- 50,343 Depletion 8,759 11,881 116,799 --------- --------- --------- 198,689 190,778 333,665 --------- --------- --------- Net income (loss) $ 220,612 $ 71,732 $(131,347) ========= ========= ========= Allocation of net income (loss): General partners $ 56,242 $ 19,205 $ (7,775) ========= ========= ========= Limited partners $ 164,370 $ 52,527 $(123,572) ========= ========= ========= Net income (loss) per limited partnership interest $ 110.91 $ 35.44 $ (83.38) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 199 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
General Limited partners partners Total -------------- -------------- --------------- Partners' capital at January 1, 1998 $ 52,826 $ 295,972 $ 348,798 Distributions (10,054) (45,727) (55,781) Net loss (7,775) (123,572) (131,347) ------------ ------------ ----------- Partners' capital at December 31, 1998 34,997 126,673 161,670 Distributions (15,981) (47,205) (63,186) Net income 19,205 52,527 71,732 ------------ ------------ ----------- Partners' capital at December 31, 1999 38,221 131,995 170,216 Distributions (48,899) (145,977) (194,876) Net income 56,242 164,370 220,612 ------------ ------------ ----------- Partners' capital at December 31, 2000 $ 45,564 $ 150,388 $ 195,952 ============= ============= ============
The accompanying notes are an integral part of these financial statements. 5 200 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------------- -------------- -------------- Cash flows from operating activities: Net income (loss) $ 220,612 $ 71,732 $ (131,347) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 50,343 Depletion 8,759 11,881 116,799 Gain on disposition of assets - - (67) Changes in assets and liabilities: Accounts receivable (28,929) (11,525) 12,794 Accounts payable (1,224) 2,906 (3,523) ----------- ---------- ------------ Net cash provided by operating activities 199,218 74,994 44,999 ----------- ----------- ------------ Cash flows from investing activities: Additions to oil and gas properties (4,512) (3,421) (2,481) Proceeds from asset dispositions - - 14,234 ----------- ----------- ------------ Net cash provided by (used in) investing activities (4,512) (3,421) 11,753 ----------- ----------- ------------ Cash flows used in financing activities: Cash distributions to partners (194,876) (63,186) (55,781) ----------- ----------- ------------ Net increase (decrease) in cash (170) 8,387 971 Cash at beginning of year 38,716 30,329 29,358 ----------- ----------- ------------ Cash at end of year $ 38,546 $ 38,716 $ 30,329 ============ ============ =============
The accompanying notes are an integral part of these financial statements. 6 201 PARKER & PARSLEY 81-I, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 81-I, Ltd. (the "Partnership") is a limited partnership organized in 1981 under the laws of the State of Texas. The Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P Employees 81-I, Ltd. ("EMPL"). The Partnership's managing general partner is Pioneer USA. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 7 202 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 8 203 in the industry. As a result, the Partnership recognized a non-cash impairment provision of $50,343 related to its proved oil and gas properties during 1998. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $308,345 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Net income (loss) per statements of operations $ 220,612 $ 71,732 $ (131,347) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 6,157 9,884 114,643 Impairment of oil and gas properties for financial reporting purposes - - 50,343 Other, net (447) (62) 81 ----------- ------------ ----------- Net income per Federal income tax returns $ 226,322 $ 81,554 $ 33,720 ============ ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Property acquisition costs $ 4,512 $ 3,421 $ 2,481 ============= ============ =============
Capitalized oil and gas properties consist of the following:
2000 1999 ---------------- ---------------- Proved properties: Property acquisition costs $ 156,084 $ 156,084 Completed wells and equipment 5,089,060 5,084,548 ------------- ------------- 5,245,144 5,240,632 Accumulated depletion (5,142,190) (5,133,431) ------------- ------------- Net oil and gas properties $ 102,954 $ 107,201 ============== ==============
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 9 204
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 78,719 $ 73,881 $ 76,809 Reimbursement of general and administrative expenses $ 12,487 $ 7,820 $ 6,250
Pioneer USA, EMPL and the Partnership are parties to the Partnership agreement. EMPL is a limited partnership in which Pioneer USA owns 60% and the remaining portion is owned by former affiliates. The costs and revenues of the Partnership are allocated as follows:
General Limited partners partners -------- -------- Revenues: Proceeds from property dispositions prior to cost recovery 10% 90% All other Partnership revenues 25% 75% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 10% 90% Operating costs, direct costs and general and administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 205
Oil and NGLs Gas (bbls) (mcf) -------- -------- Net proved reserves at January 1, 1998 131,090 275,544 Revisions (70,930) (119,307) Production (13,937) (24,638) -------- -------- Net proved reserves at December 31, 1998 46,223 131,599 Revisions 160,567 219,656 Production (14,970) (28,708) -------- -------- Net proved reserves at December 31, 1999 191,820 322,547 Revisions 33,336 130,129 Production (13,976) (25,901) -------- -------- Net proved reserves at December 31, 2000 211,180 426,775 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.30 per barrel of NGLs and $7.65 per mcf of gas, discounted at 10% was approximately $1,915,000 and undiscounted was $3,748,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 11 206
For the years ended December 31, --------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and gas producing activities: Future cash inflows $ 7,853 $ 4,776 $ 583 Future production costs (4,105) (3,078) (433) ------------- ------------ ------------- 3,748 1,698 150 10% annual discount factor (1,833) (734) (64) ------------- ------------ ------------- Standardized measure of discounted future net cash flows $ 1,915 $ 964 $ 86 ============== ============= ==============
For the years ended December 31, --------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (242) $ (95) $ (42) Net changes in prices and production costs 888 180 (301) Revisions of previous quantity estimates 415 788 (112) Accretion of discount 96 8 52 Changes in production rates, timing and other (206) (3) (33) ------------- ------------ ------------ Change in present value of future net revenues 951 878 (436) ------------- ------------ ------------ Balance, beginning of year 964 86 522 ------------- ------------ ------------ Balance, end of year $ 1,915 $ 964 $ 86 ============== ============= =============
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 54% 51% - Genesis Crude Oil, L.P. - - 59% Western Gas Resources, Inc. - 6% 18% Exxon Corporation 8% 7% 11%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $19,892 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. 12 207 NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: General partners - The general partners of the Partnership are Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $7,410,000. The general partners are required to contribute amounts equal to 10% of Partnership expenditures for lease acquisition, drilling and completion and 25% of direct, general and administrative and operating expenses. 13 208 PARKER & PARSLEY 81-I, LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 60% to $416,230 for 2000 as compared to $260,652 in 1999. The increase in revenues resulted from higher average prices received, offset by a decrease in production. In 2000, 8,793 barrels of oil, 5,183 barrels of natural gas liquids ("NGLs") and 25,901 mcf of gas were sold, or 18,293 barrel of oil equivalents ("BOEs"). In 1999, 9,249 barrels of oil, 5,721 barrels of NGLs and 28,708 mcf of gas were sold, or 19,755 BOEs. 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 increased $12.32, or 73%, from $16.94 in 1999 to $29.26 in 2000. The average price received per barrel of NGLs increased $5.38, or 58%, from $9.22 in 1999 to $14.60 in 2000. The average price received per mcf of increased 81% from $1.78 in 1999 to $3.22 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $198,689 as compared to $190,778 in 1999, an increase of $7,911, or 4%. The increase was primarily due to an increase in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $174,233 in 2000 and $165,810 in 1999, resulting in an $8,423 increase, or 5%. The increase was primarily due to higher production taxes associated with higher oil and gas prices, offset by less well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 20% from $13,087 in 1999 to $15,697 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $12,487 in 2000 and $7,820 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $8,759 in 2000 as compared to $11,881 in 1999, representing a decrease of $3,122, or 26%. This decrease was primarily due to a 20,821 barrels of oil increase in proved reserves during 2000 as a result of the higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 30% to $260,652 from $199,789 in 1998. The increase in revenues resulted from higher average prices received and an increase in production. In 1999, 9,249 barrels of oil, 5,721 barrels of NGLs and 28,708 mcf of gas were sold, or 19,755 BOEs. In 1998, 9,634 barrels of oil, 4,303 barrels of NGLs and 24,638 mcf of gas were sold, or 18,043 BOEs. 209 The average price received per barrel of oil increased $3.61, or 27%, from $13.33 in 1998 to $16.94 in 1999. The average price received per barrel of NGLs increased $2.82, or 44%, from $6.40 in 1998 to $9.22 in 1999. The average price received per mcf of gas remained unchanged at $1.78 in 1998 and 1999. Total costs and expenses decreased in 1999 to $190,778 as compared to $333,665 in 1998, a decrease of $142,887, or 43%. The decrease was primarily due to declines in depletion and the impairment of oil and gas properties, offset by an increase in production costs and G&A. Production costs were $165,810 in 1999 and $157,631 in 1998, resulting in an $8,179 increase, or 5%. The increase was due to additional well maintenance costs incurred to stimulate well production and an increase in production taxes due to increased oil and gas revenues, offset by a decline in ad valorem taxes. During this period, G&A increased 47% from $8,892 in 1998 to $13,087 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $7,820 in 1999 and $6,250 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $50,343 related to its oil and gas properties during 1998. Depletion was $11,881 in 1999 compared to $116,799 in 1998, representing a decrease of $104,918, or 90%. This decrease was the result of a combination of factors that included an increase in proved reserves of 104,672 barrels of oil during 1999 as a result of the higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 385 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $124,224 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $156,791, offset by increases in production costs paid of $8,423, G&A expenses paid of $2,610 and working capital of $21,534. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $187,015 to oil and gas receipts, offset by $30,224 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices, offset by lower well maintenance costs. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. 210 Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to upgrades of equipment on various oil and gas properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $194,876, of which $48,899 was distributed to the general partners and $145,977 to the limited partners. In 1999, cash distributions to the partners were $63,186, of which $15,981 was distributed to the general partners and $47,205 to the limited partners. 211 PARKER & PARSLEY 81-I, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 211,753 $ 191,199 $ 416,230 $ 260,652 $ 199,789 $ 279,957 $ 396,128 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 50,343 $ 255,709 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 30,621 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 115,288 $ 97,064 $ 220,612 $ 71,732 $ (131,347) $ (241,864) $ 203,620 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): General partners $ 29,163 $ 24,819 $ 56,242 $ 19,205 $ (7,775) $ (11,941) $ 54,950 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 86,125 $ 72,245 $ 164,370 $ 52,527 $ (123,572) $ (229,923) $ 148,670 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 58.11 $ 48.75 $ 110.91 $ 35.44 $ (83.38) $ (155.14) $ 100.32 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 34.55 $ 48.81 $ 98.50 $ 31.85 $ 30.85 $ 68.90 $ 107.95(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 252,467 $ 181,960 $ 204,769 $ 180,257 $ 168,805 $ 359,456 $ 734,832 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $20.66 in 1996. 212 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 81-II LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 81-II Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 81-II Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 213 PARKER & PARSLEY 81-II LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 6,440 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 5,422 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 527 USA(a), (b) Merger Value per $1,000 Limited Partner Investment(b), (c) $ 82.20 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.38 times past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 85.94 -- as of December 31, 2000(c) $ 84.93 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 74.52 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 79.81 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 290 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001, by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent the estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax status or classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership shall continue until terminated in accordance with the applicable provisions of its partnership agreement. -2- 214 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 215 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 83,809 $ 29,376 Accounts receivable - oil and gas sales 38,815 64,821 ---------- ---------- Total current assets 122,624 94,197 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,349,540 5,345,296 Accumulated depletion (4,842,640) (4,821,914) ---------- ---------- Net oil and gas properties 506,900 523,382 ---------- ---------- $ 629,524 $ 617,579 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 9,160 $ 9,253 Partners' capital: General partners 66,930 61,405 Limited partners (1,153 interests) 553,434 546,921 ---------- ---------- 620,364 608,326 ---------- ---------- $ 629,524 $ 617,579 ========== ==========
The financial information included as of June 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. 2 216 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 90,934 $ 104,047 $ 199,000 $ 174,048 Interest 663 496 1,345 893 -------- -------- -------- -------- 91,597 104,543 200,345 174,941 -------- -------- -------- -------- Costs and expenses: Oil and gas production 50,059 50,877 100,899 99,416 General and administrative 2,729 3,420 7,177 5,610 Depletion 10,062 15,070 20,726 26,817 -------- -------- -------- -------- 62,850 69,367 128,802 131,843 -------- -------- -------- -------- Net income $ 28,747 $ 35,176 $ 71,543 $ 43,098 ======== ======== ======== ======== Allocation of net income: General partners $ 8,696 $ 11,054 $ 20,740 $ 14,797 ======== ======== ======== ======== Limited partners $ 20,051 $ 24,122 $ 50,803 $ 28,301 ======== ======== ======== ======== Net income per limited partnership interest $ 17.39 $ 20.93 $ 44.06 $ 24.55 ======== ======== ======== ========
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. 3 217 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
General Limited partners partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 61,405 $ 546,921 $ 608,326 Distributions (15,215) (44,290) (59,505) Net income 20,740 50,803 71,543 -------- --------- --------- Balance at June 30, 2001 $ 66,930 $ 553,434 $ 620,364 ======== ========= =========
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. 4 218 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ----------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 71,543 $ 43,098 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 20,726 26,817 Changes in assets and liabilities: Accounts receivable 26,006 (20,263) Accounts payable (93) 1,090 -------- -------- Net cash provided by operating activities 118,182 50,742 -------- -------- Cash flows used in investing activities: Additions to oil and gas properties (4,244) (5,487) Cash flows used in financing activities: Cash distributions to partners (59,505) (42,093) -------- -------- Net increase in cash 54,433 3,162 Cash at beginning of period 29,376 30,160 -------- -------- Cash at end of period $ 83,809 $ 33,322 ======== ========
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. 5 219 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 81-II (the "Partnership") is a limited partnership organized in 1981 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 14% to $199,000 for the six months ended June 30, 2001 as compared to $174,048 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 4,136 barrels 6 220 of oil, 1,400 barrels of natural gas liquids ("NGLs") and 11,975 mcf of gas were sold, or 7,532 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 4,547 barrels of oil, 2,406 barrels of NGLs and 6,862 mcf of gas were sold, or 8,097 BOEs. The average price received per barrel of oil increased $.17, or 1%, from $27.24 for the six months ended June 30, 2000 to $27.41 for the same period in 2001. The average price received per barrel of NGLs increased $3.03, or 21%, from $14.40 during the six months ended June 30, 2000 to $17.43 for the same period in 2001. The average price received per mcf of gas increased 127% from $2.26 during the six months ended June 30, 2000 to $5.12 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses decreased to $128,802 for the six months ended June 30, 2001 as compared to $131,843 for the same period in 2000, a decrease of $3,041, or 2%. This decrease was due to a decline in depletion, offset by increases in general and administrative expenses ("G&A") and production costs. Production costs were $100,899 for the six months ended June 30, 2001 and $99,416 for the same period in 2000 resulting in a $1,483 increase, or 1%. The increase was due to higher production taxes due to higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 28% from $5,610 for the six months ended June 30, 2000 to $7,177 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $20,726 for the six months ended June 30, 2001 as compared to $26,817 for the same period in 2000, a decrease of $6,091, or 23%. This decrease was the result of a decline in oil production of 411 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 13% to $90,934 for the three months ended June 30, 2001 as compared to $104,047 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and 7 221 a decrease in production, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 1,967 barrels of oil, 865 barrels of NGLs and 6,244 mcf of gas were sold, or 3,873 BOEs. For the three months ended June 30, 2000, 2,495 barrels of oil, 1,721 barrels of NGLs and 5,373 mcf of gas were sold, or 5,112 BOEs. The average price received per barrel of oil decreased $.25, or 1%, from $27.16 for the three months ended June 30, 2000 to $26.91 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $2.13, or 16%, from $13.15 during the three months ended June 30, 2000 to $15.28 for the same period in 2001. The average price received per mcf of gas increased 56% to $3.97 during the three months ended June 30, 2001 from $2.54 during the same period in 2000. Costs and Expenses: Total costs and expenses decreased to $62,850 for the three months ended June 30, 2001 as compared to $69,367 for the same period in 2000, a decrease of $6,517, or 9%. This decrease was due to declines in depletion, production costs and G&A. Production costs were $50,059 for the three months ended June 30, 2001 and $50,877 for the same period in 2000 resulting in an $818 decrease, or 2%. The decrease was due to lower well maintenance costs. During this period, G&A decreased 20%, from $3,420 for the three months ended June 30, 2000 to $2,729 for the same period in 2001, primarily due to a lower allocation 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 a decrease in audit and tax fees. Depletion was $10,062 for the three months ended June 30, 2001 as compared to $15,070 for the same period in 2000, a decrease of $5,008, or 33%. This decrease was the result of a decline in oil production of 528 barrels for the three months ended June 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 $67,440 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $25,404 and a reduction in working capital of $45,086, offset by increases in production costs of $1,483 and G&A expenses of $1,567. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $27,593 to oil and gas receipts, offset by $2,189 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to increased production taxes 8 222 associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Used in Investing Activities For the six months ended June 30, 2001 and 2000, the Partnership's investing activities included expenditures related to equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $59,505, of which $15,215 was distributed to the general partners and $44,290 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $42,093, of which $9,905 was distributed to the general partners and $32,188 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, because it contains important information about the proposed mergers, including information about the direct and indirect interests of Pioneer USA and Pioneer 9 223 in the mergers. The limited partners may also obtain the preliminary and (when filed) 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. 10 224 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 225 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 81-II, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 81-II, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 81-II, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 226 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------- --------- ASSETS ------ Current assets: Cash $ 29,376 $ 30,160 Accounts receivable - oil and gas sales 64,821 27,908 ---------- --------- Total current assets 94,197 58,068 ---------- --------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,345,296 5,338,113 Accumulated depletion (4,821,914) (4,776,074) ---------- --------- Net oil and gas properties 523,382 562,039 ---------- --------- $617,579 $ 620,107 ========== ========= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 9,253 $ 10,581 Partners' capital: General partners 61,405 58,558 Limited partners (1,153 interests) 546,921 550,968 ---------- --------- 608,326 609,526 ---------- --------- $ 617,579 $ 620,107 ========== =========
The accompanying notes are an integral part of these financial statements. 3 227 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 -------- -------- -------- Revenues: Oil and gas $ 387,180 $ 204,717 $ 209,110 Interest 2,775 1,395 1,725 Gain on disposition of assets - 240 - -------- -------- -------- 389,955 206,352 210,835 -------- -------- -------- Costs and expenses: Oil and gas production 189,764 140,847 173,960 General and administrative 13,791 9,864 7,867 Impairment of oil and gas properties - - 30,131 Depletion 45,840 49,409 95,466 -------- -------- -------- 249,395 200,120 307,424 -------- -------- -------- Net income (loss) $ 140,560 $ 6,232 $ (96,589) ======== ======== ======== Allocation of net income (loss): General partners $ 41,791 $ 8,423 $ (5,308) ======== ======== ======== Limited partners $ 98,769 $ (2,191) $ (91,281) ======== ======== ======== Net income (loss) per limited partnership interest $ 85.66 $ (1.90) $ (79.17) ======== ======== ========
The accompanying notes are an integral part of these financial statements. 4 228 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
General Limited partners partners Total --------- --------- --------- Partners' capital at January 1, 1998 $ 76,354 $706,525 $782,879 Distributions (11,831) (34,220) (46,051) Net loss (5,308) (91,281) (96,589) --------- --------- --------- Partners' capital at December 31, 1998 59,215 581,024 640,239 Distributions (9,080) (27,865) (36,945) Net income (loss) 8,423 (2,191) 6,232 --------- --------- --------- Partners' capital at December 31, 1999 58,558 550,968 609,526 Distributions (38,944) (102,816) (141,760) Net income 41,791 98,769 140,560 --------- --------- --------- Partners' capital at December 31, 2000 $ 61,405 $546,921 $608,326 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 5 229 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $140,560 $ 6,232 $(96,589) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 30,131 Depletion 45,840 49,409 95,466 Gain on disposition of assets - (240) - Changes in assets and liabilities: Accounts receivable (36,913) (3,325) 15,443 Accounts payable (1,328) 3,022 (3,482) --------- --------- --------- Net cash provided by operating activities 148,159 55,098 40,969 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (7,183) (4,254) (8,322) Proceeds from asset dispositions - 690 - --------- --------- --------- Net cash used in investing activities (7,183) (3,564) (8,322) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (141,760) (36,945) (46,051) --------- --------- --------- Net increase (decrease) in cash (784) 14,589 (13,404) Cash at beginning of year 30,160 15,571 28,975 --------- --------- --------- Cash at end of year $ 29,376 $30,160 $ 15,571 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 230 PARKER & PARSLEY 81-II, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 81-II (the "Partnership") is a limited partnership organized in 1981 under the laws of the State of Texas. The Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P Employees 81-II, Ltd. ("EMPL"). The Partnership's managing general partner is Pioneer USA. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 7 231 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 8 232 in the industry. As a result, the Partnership recognized a non-cash impairment provision of $30,131 related to its proved oil and gas properties during 1998. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $172,373 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- -------- --------- Net income (loss) per statements of operations $ 140,560 $ 6,232 $ (96,589) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 41,011 44,867 91,653 Impairment of oil and gas properties for financial reporting purposes - - 30,131 Other, net (482) (178) 454 --------- -------- --------- Net income per Federal income tax returns $181,089 $ 50,921 $ 25,649 ========= ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- -------- --------- Development costs $ 7,183 $ 4,254 $ 8,322 ========= ======== ========= Capitalized oil and gas properties consist of the following:
2000 1999 ---------- ---------- Proved properties: Property acquisition costs $ 210,548 $ 210,548 Completed wells and equipment 5,134,748 5,127,565 ---------- ---------- 5,345,296 5,338,113 Accumulated depletion (4,821,914) (4,776,074) Net oil and gas properties $ 523,382 $ 562,039 ========== ==========
9 233 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 75,129 $ 61,684 $ 82,817 Reimbursement of general and administrative expenses $ 11,615 $ 6,142 $ 6,273
Pioneer USA, EMPL and the Partnership are parties to the Partnership agreement. EMPL is a limited partnership in which Pioneer USA owns 80% and the remaining portion is owned by former affiliates. The costs and revenues of the Partnership are allocated as follows:
General Limited partners partners -------- -------- Revenues: Proceeds from property dispositions prior to cost recovery 10% 90% All other Partnership revenues 25% 75% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 10% 90% Operating costs, direct costs and general and administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 234
Oil and NGLs Gas (bbls) (mcf) ------------ ------------ Net proved reserves at January 1, 1998 203,263 321,961 Revisions (93,478) (131,045) Production (16,033) (22,439) --------- ---------- Net proved reserves at December 31, 1998 93,752 168,477 Revisions 118,281 224,790 Production (13,232) (19,167) --------- ---------- Net proved reserves at December 31, 1999 198,801 374,100 Revisions 18,015 (61,237) Production (13,921) (15,864) --------- ---------- Net proved reserves at December 31, 2000 202,895 296,999 ========= ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $14.08 per barrel of NGLs and $7.91 per mcf of gas, discounted at 10% was approximately $1,416,000 and undiscounted was $2,636,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 11 235
For the years ended December 31, -------------------------------- 2000 1999 1998 --------- ---------- --------- (in thousands) Oil and gas producing activities: Future cash inflows $ 6,624 $ 4,915 $ 1,020 Future production costs (3,988) (3,116) (849) -------- --------- -------- 2,636 1,799 171 10% annual discount factor (1,220) (799) (47) -------- --------- -------- Standardized measure of discounted future net cash flows $ 1,416 $ 1,000 $ 124 ======== ========= ========
For the years ended December 31, -------------------------------- 2000 1999 1998 --------- ---------- --------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (197) $ (64) $ (35) Net changes in prices and production costs 530 471 (544) Revisions of previous quantity estimates 45 781 (94) Accretion of discount 100 12 76 Changes in production rates, timing and other (62) (324) (40) -------- --------- -------- Change in present value of future net revenues 416 876 (637) -------- --------- -------- Balance, beginning of year 1,000 124 761 ------ ------- ------ Balance, end of year $ 1,416 $ 1,000 $ 124 ======= ======== =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 56% 48% - LG&E Natural Marketing, Inc. 13% 17% 19% NGTS LLC 11% 14% - Western Gas Processing 2% 4% 13% Genesis Crude Oil, L.P. 4% 1% 43%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., LG&E Natural Marketing, Inc. and NGTS LLC were $26,794, $10,707 and $4,029, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. 12 236 NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: General partners - The general partners of the Partnership are Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $5,765,000. During 1983, the Partnership received a total of $675,000 from its limited partnership in response to an assessment by the managing general partner. The general partners are required to contribute amounts equal to 10% of Partnership expenditures for lease acquisition, drilling and completion and 25% of direct, general and administrative and operating expenses. 13 237 PARKER & PARSLEY 81-II, LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 89% to $387,180 for 2000 as compared to $204,717 in 1999. The increase in revenues resulted from higher average prices received and a slight increase in production. In 2000, 8,885 barrels of oil, 5,036 barrels of natural gas liquids ("NGLs") and 15,864 mcf of gas were sold, or 16,565 barrel of oil equivalents ("BOEs"). In 1999, 6,860 barrels of oil, 6,372 barrels of NGLs and 19,167 mcf of gas were sold, or 16,427 BOEs. 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 increased $12.59, or 76%, from $16.67 in 1999 to $29.26 in 2000. The average price received per barrel of NGLs increased $6.89, or 79%, from $8.70 in 1999 to $15.59 in 2000. The average price received per mcf of gas increased 69% from $1.82 in 1999 to $3.07 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $240 was recognized during 1999 from equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $249,395 as compared to $200,120 in 1999, an increase of $49,275, or 25%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $189,764 in 2000 and $140,847 in 1999, resulting in a $48,917 increase, or 35%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 40% from $9,864 in 1999 to $13,791 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $11,615 in 2000 and $6,142 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $45,840 in 2000 as compared to $49,409 in 1999, representing a decrease of $3,569, or 7%. This decrease was primarily due to an 18,828 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices, offset by an increase in oil production of 2,025 barrels for the period ended December 31, 2000 compared to the same period in 1999. 238 1999 compared to 1998 The Partnership's 1999 oil and gas revenues decreased 2% to $204,717 from $209,110 in 1998. The decrease in revenues resulted from a decline in production, offset by higher average prices received. In 1999, 6,860 barrels of oil, 6,372 barrels of NGLs and 19,167 mcf of gas were sold, or 16,427 BOEs. In 1998, 9,451 barrels of oil, 6,582 barrels of NGLs and 22,439 mcf of gas were sold, or 19,773 BOEs. The average price received per barrel of oil increased $3.51, or 27%, from $13.16 in 1998 to $16.67 in 1999. The average price received per barrel of NGLs increased $1.97, or 29%, from $6.73 in 1998 to $8.70 in 1999. The average price received per mcf of gas increased slightly from $1.80 in 1998 to $1.82 in 1999. Gain on disposition of assets of $240 was recognized during 1999 from equipment credits received on one fully depleted well. Total costs and expenses decreased in 1999 to $200,120 as compared to $307,424 in 1998, a decrease of $107,304, or 35%. The decrease was primarily due to declines in depletion, production costs and the impairment of oil and gas properties, offset by an increase in G&A. Production costs were $140,847 in 1999 and $173,960 in 1998, resulting in a $33,113 decrease, or 19%. The decrease was due to declines in well maintenance costs, ad valorem taxes and production taxes. During this period, G&A increased 25% from $7,867 in 1998 to $9,864 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $6,142 in 1999 and $6,273 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $30,131 related to its oil and gas properties during 1998. Depletion was $49,409 in 1999 compared to $95,466 in 1998, representing a decrease of $46,057, or 48%. This decrease was the result of a combination of factors that included an increase in proved reserves of 59,807 barrels of oil during 1999 as a result of higher commodity prices, a decline in oil production of 2,591 barrels for the period ended December 31, 1999 compared to the same period in 1998 and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum Industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 239 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $93,061 during the year ended December 31, 2000 from 1999. This increase was due to increases in oil and gas sales receipts of $183,843, offset by increases in production costs paid of $48,917, G&A expenses paid of $3,927 and working capital of $37,938. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $65,846 to oil and gas receipts and $117,997 resulted from an increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to upgrades of equipment on various oil and gas properties. Proceeds from asset dispositions of $690 were received during 1999 for the sale of equipment on active properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $141,760, of which $38,944 was distributed to the general partners and $102,816 to the limited partners. In 1999, cash distributions to the partners were $36,945, of which $9,080 was distributed to the general partners and $27,865 to the limited partners. 240 PARKER & PARSLEY 81-II, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Oil and gas sales $ 199,000 $ 174,048 $ 387,180 $ 204,717 $ 209,110 $ 311,922 $ 363,398 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 30,131 $ 52,269 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 3,289 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 71,543 $ 43,098 $ 140,560 $ 6,232 $ (96,589) $ 9,511 $ 113,519 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): General partners $ 20,740 $ 14,797 $ 41,791 $ 8,423 $ (5,308) $ 24,620 $ 37,637 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 50,803 $ 28,301 $ 98,769 $ (2,191) $ (91,281) $ (15,109) $ 75,882 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 44.06 $ 24.55 $ 85.66 $ (1.90) $ (79.17) $ (13.10) $ 65.81 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 38.41 $ 27.92 $ 89.17 $ 24.17 $ 29.68 $ 93.49 $ 89.30(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 629,524 $ 622,202 $ 617,579 $ 620,107 $ 647,798 $ 793,920 $ 928,791 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $2.85 in 1996. 241 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 82-I, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 82-I, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 82-I, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 - 1- 242 PARKER & PARSLEY 82-I, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $11,805 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $11,639 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 868 USA(a),(b) Merger Value per $1,000 Limited Partner Investment(b),(c) $ 83.32 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 2.80 times past four quarterly distributions including the distribution in July 2001(b),(c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 28.17 -- as of December 31, 2000(c) $ 23.71 Going Concern Value per $1,000 Limited Partner Investment(c),(d) $ 75.12 Liquidation Value per $1,000 Limited Partner Investment(c),(e) $ 80.84 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 265 (c),(f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less, liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership shall continue until terminated in accordance with the applicable provisions of its partnership agreement. - 2 - 243 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, 2001 Commission File No. 2-75530A PARKER & PARSLEY 82-I, LTD. (Exact name of Registrant as specified in its charter) Texas 75-1825545 -------------------------------------------- --------------------- (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 / / 244 PARKER & PARSLEY 82-I, LTD. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000....................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000...................... 4 Statement of Partners' Capital for the six months ended June 30, 2001...................................... 5 Statements of Cash Flows for the six months months ended June 30, 2001 and 2000...................... 6 Notes to Financial Statements.............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K........................... 11 Signatures................................................. 12 2 245 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 171,115 $ 57,728 Accounts receivable - oil and gas sales 87,313 109,719 ---------- ---------- Total current assets 258,428 167,447 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,901,101 9,901,101 Accumulated depletion (9,626,361) (9,613,644) ---------- ---------- Net oil and gas properties 274,740 287,457 ---------- ---------- $ 533,168 $ 454,904 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 19,146 $ 13,712 Partners' capital: General partners 181,450 161,365 Limited partners (4,891 interests) 332,572 279,827 ---------- ---------- 514,022 441,192 ---------- ---------- $ 533,168 $ 454,904 ========== ==========
The financial information included as of June 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. 3 246 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 205,010 $ 177,445 $ 421,846 $ 349,532 Interest 1,178 1,350 2,407 2,323 -------- -------- -------- -------- 206,188 178,795 424,253 351,855 -------- -------- -------- -------- Costs and expenses: Oil and gas production 99,464 98,002 197,450 183,025 General and administrative 6,272 5,969 14,448 11,332 Depletion 6,849 7,055 12,717 16,112 -------- -------- -------- -------- 112,585 111,026 224,615 210,469 -------- -------- -------- -------- Net income $ 93,603 $ 67,769 $ 199,638 $ 141,386 ======== ======== ======== ======== Allocation of net income: General partners $ 24,428 $ 18,000 $ 51,562 $ 37,763 ======== ======== ======== ======== Limited partners $ 69,175 $ 49,769 $ 148,076 $ 103,623 ======== ======== ======== ======== Net income per limited partnership interest $ 14.15 $ 10.18 $ 30.28 $ 21.19 ======== ======== ======== ========
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. 4 247 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
General Limited partners partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 161,365 $ 279,827 $ 441,192 Distributions (31,477) (95,331) (126,808) Net income 51,562 148,076 199,638 --------- --------- --------- Balance at June 30, 2001 $ 181,450 $ 332,572 $ 514,022 ========= ========= =========
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. 5 248 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 199,638 $ 141,386 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 12,717 16,112 Changes in assets and liabilities: Accounts receivable 22,406 (28,544) Accounts payable 5,434 8,360 --------- --------- Net cash provided by operating activities 240,195 137,314 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties - (1,493) Cash flows used in financing activities: Cash distributions to partners (126,808) (136,929) --------- --------- Net increase (decrease) in cash 113,387 (1,108) Cash at beginning of period 57,728 61,558 --------- --------- Cash at end of period $ 171,115 $ 60,450 ========= =========
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. 6 249 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 82-I, Ltd. (the "Partnership") is a limited partnership organized in 1982 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 21% to $421,846 for the six months ended June 30, 2001 as compared to $349,532 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a slight decrease in production. For the six months ended June 30, 2001, 9,044 barrels of oil, 2,344 barrels of natural gas liquids ("NGLs") and 27,831 mcf of 7 250 gas were sold, or 16,027 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 8,863 barrels of oil, 3,292 barrels of NGLs and 23,257 mcf of gas were sold, or 16,031 BOEs. The average price received per barrel of oil increased $.21, or 1%, from $27.45 for the six months ended June 30, 2000 to $27.66 for the same period in 2001. The average price received per barrel of NGLs increased $3.42, or 26%, from $13.16 for the six months ended June 30, 2000 to $16.58 for the same period in 2001. The average price received per mcf of gas increased 76% from $2.71 during the six months ended June 30, 2000 to $4.77 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $224,615 for the six months ended June 30, 2001 as compared to $210,469 for the same period in 2000, an increase of $14,146, or 7%. This increase was attributable to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $197,450 for the six months ended June 30, 2001 and $183,025 for the same period in 2000 resulting in a $14,425 increase, or 8%. This increase was due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 27% from $11,332 for the six months ended June 30, 2000 to $14,448 for the same period in 2001 primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $12,717 for the six months ended June 30, 2001 as compared to $16,112 for the same period in 2000, a decrease of $3,395, or 21%. This decrease was primarily due to positive revisions to proved reserves on two significant wells during the period ended June 30, 2001. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 16% to $205,010 for the three months ended June 30, 2001 as compared to $177,445 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs and an increase in production, offset by lower average prices received for oil. For the three months ended June 30, 2001, 4,582 barrels of oil, 1,488 barrels of NGLs and 14,557 mcf of gas were sold, or 8,496 BOEs. For the three months ended June 30, 2000, 4,430 barrels of oil, 1,482 barrels of NGLs and 11,022 mcf of gas were sold, or 7,749 BOEs. 8 251 The average price received per barrel of oil decreased $.35, or 1%, from $27.67 for the three months ended June 30, 2000 to $27.32 for the same period in 2001. The average price received per barrel of NGLs increased $1.05, or 8%, from $13.75 during the three months ended June 30, 2000 to $14.80 for the same period in 2001. The average price received per mcf of gas increased 27% from $3.13 during the three months ended June 30, 2000 to $3.97 for the same period in 2001. Costs and Expenses: Total costs and expenses increased to $112,585 for the three months ended June 30, 2001 as compared to $111,026 for the same period in 2000, an increase of $1,559, or 1%. This increase was due to increases in production costs and G&A, offset by a decline in depletion. Production costs were $99,464 for the three months ended June 30, 2001 and $98,002 for the same period in 2000 resulting in a $1,462 increase, or 1%. This increase was due to higher production taxes associated with higher gas and NGL prices and additional well maintenance costs incurred to stimulate well production. During this period, G&A increased 5% from $5,969 for the three months ended June 30, 2000 to $6,272 for the same period in 2001 primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $6,849 for the three months ended June 30, 2000 as compared to $7,055 for the same period in 2000, a decrease of $206, or 3%. This decrease was primarily due to positive revisions to proved reserves on two significant wells during the period ended June 30, 2000. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $102,881 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase of $72,398 in oil and gas sales receipts and a reduction of $48,024 in working capital, offset by increases in production costs of $14,425 and G&A expenses of $3,116. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $61,286 to oil and gas receipts and $11,112 resulting from an increase in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's principle investing activities during the six months ended June 30, 2000 were related to the upgrades of oil and gas equipment on active properties. 9 252 Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $126,808, of which $31,477 was distributed to the general partners and $95,331 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $136,929, of which $34,201 was distributed to the general partners and $102,728 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 253 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 254 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) SIGNATURES 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 82-I, LTD. By: Pioneer Natural Resources USA, Inc. Managing General Partner Dated: August 6, 2001 By: /s/ Rich Dealy ----------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 255 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 2-75530A PARKER & PARSLEY 82-I, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-1825545 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code: (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($2,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $8,515,000. As of March 8, 2001, the number of outstanding limited partnership interests was 4,891. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 256 PART I ITEM 1. BUSINESS Parker & Parsley 82-I, Ltd. (the "Partnership") is a limited partnership organized in 1982 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA") and its co-general partner is P&P Employees 82-I, Ltd. ("EMPL"), a Texas limited partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 4,891 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers. Of the Partnership's total oil and gas revenues for 2000, approximately 68% and 13% were attributable to sales made to Plains Marketing, L.P. and GPM Gas Corporation, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. 2 257 The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental and exploratory oil and gas prospects located in Texas and New Mexico were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 34 oil and gas wells. There were six dry holes from previous periods, two wells plugged and abandoned and nine wells sold. At December 31, 2000, 17 wells were producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 258 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 4,891 outstanding limited partnership interests held of record by 600 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $229,765 and $50,502, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ---------- Operating results: ----------------- Oil and gas sales $ 763,858 $ 441,997 $ 392,883 $ 608,207 $ 710,173 ============ ============ ============ ============ ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ 43,618 ============ ============ ============ ============ ========== Impairment of oil and gas properties $ -- $ -- $ 294,610 $ 165,201 $ 2,277 ============ ============ ============ ============ ========== Net income (loss) $ 337,729 $ 17,320 $ (563,993) $ (60,847) $ 312,582 ============ ============ ============ ============ ========== Allocation of net income (loss): General partners $ 88,128 $ 18,135 $ (49,472) $ 31,736 $ 92,811 ============ ============ ============ ============ ========== Limited partners $ 249,601 $ (815) $ (514,521) $ (92,583) $ 219,771 ============ ============ ============ ============ ========== Limited partners' net income (loss) per limited partnership interest $ 51.03 $ (.17) $ (105.20) $ (18.93) $ 44.93 ============ ============ ============ ============ ========== Limited partners' cash distributions per limited partnership interest $ 46.98 $ 10.33 $ 19.57 $ 47.31 $ 51.40(a) ============ ============ ============ ============ ========== At year end: ----------- Identifiable assets $ 454,904 $ 425,107 $ 474,528 $ 1,158,135 $1,526,765 ============ ============ ============ ============ ==========
--------------- (a) Including litigation settlement per limited partnership interest of $6.96 in 1996. 4 259 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 73% to $763,858 for 2000 as compared to $441,997 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 17,639 barrels of oil, 6,519 barrels of natural gas liquids ("NGLs") and 45,981 mcf of gas were sold, or 31,822 barrel of oil equivalents ("BOEs"). In 1999, 17,472 barrels of oil, 6,414 barrels of NGLs and 48,380 mcf of gas were sold, or 31,949 BOEs. 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 increased $12.78, or 77%, from $16.61 in 1999 to $29.39 in 2000. The average price received per barrel of NGLs increased $5.48, or 61%, from $8.96 in 1999 to $14.44 in 2000. The average price received per mcf of gas increased 69% from $1.95 in 1999 to $3.29 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $431,421 as compared to $427,526 in 1999, an increase of $3,895, or 1%. The increase was due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $378,872 in 2000 and $313,158 in 1999, resulting in an increase of $65,714, or 21%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 39% from $18,932 in 1999 to $26,409 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $22,916 in 2000 and $13,260 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $26,140 in 2000 as compared to $95,436 in 1999, representing a decrease of $69,296, or 73%. This decrease was primarily due to a 86,555 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 13% to $441,997 from $392,883 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 17,472 barrels of oil, 6,414 barrels of NGLs and 48,380 mcf of gas were sold, or 31,949 BOEs. In 1998, 19,150 barrels of oil, 6,748 barrels of NGLs and 48,971 mcf of gas were sold, or 34,060 BOEs. 5 260 The average price received per barrel of oil increased $3.29, or 25%, from $13.32 in 1998 to $16.61 in 1999. The average price received per barrel of NGLs increased $1.76, or 24%, from $7.20 in 1998 to $8.96 in 1999. The average price received per mcf of gas increased 7% from $1.82 in 1998 to $1.95 in 1999. A gain on disposition of assets of $199 was recognized during 1998 from post closing adjustments received from the sale of eight oil and gas wells during 1997. Total costs and expenses decreased in 1999 to $427,526 as compared to $961,319 in 1998, a decrease of $533,793, or 56%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A expenses. Production costs were $313,158 in 1999 and $336,406 in 1998, resulting in a $23,248 decrease, or 7%. The decrease was due to declines in well maintenance costs and ad valorem taxes. During this period, G&A increased 30% from $14,542 in 1998 to $18,932 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $13,260 in 1999 and $11,786 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $294,610 related to its oil and gas properties during 1998. Depletion was $95,436 in 1999 compared to $315,761 in 1998, representing a decrease of $220,325, or 70%. This decrease was the result of an increase in proved reserves of 168,752 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact 6 261 on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $227,133 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $324,304, offset by increases in production costs paid of $65,714, G&A expenses paid of $7,477 and working capital of $23,980. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $325,772 to oil and gas receipts, offset by $1,468 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principle investing activities during 2000 and 1999 were related to the upgrades of oil and gas equipment on various oil and gas properties. Proceeds from asset dispositions of $704 in 1999 were from equipment credits received on active properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $308,330, of which $78,565 was distributed to the general partners and $229,765 to the limited partners. In 1999, cash distributions to the partners were $67,767, of which $17,265 was distributed to the general partners and $50,502 to the limited partners. 7 262 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 82-I, Ltd: Independent Auditors' Report............................................ 9 Balance Sheets as of December 31, 2000 and 1999......................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................... 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998...................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Notes to Financial Statements........................................... 14
8 263 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 82-I, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 82-I, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 82-I, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 264 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 57,728 $ 61,558 Accounts receivable - oil and gas sales 109,719 61,533 ----------- ----------- Total current assets 167,447 123,091 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,901,101 9,889,520 Accumulated depletion (9,613,644) (9,587,504) ----------- ----------- Net oil and gas properties 287,457 302,016 ----------- ----------- $ 454,904 $ 425,107 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 13,712 $ 13,314 Partners' capital: General partners 161,365 151,802 Limited partners (4,891 interests) 279,827 259,991 ----------- ----------- 441,192 411,793 ----------- ----------- $ 454,904 $ 425,107 =========== ===========
The accompanying notes are an integral part of these financial statements. 10 265 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 763,858 $ 441,997 $ 392,883 Interest 5,292 2,849 4,244 Gain on disposition of assets -- -- 199 --------- --------- --------- 769,150 444,846 397,326 --------- --------- --------- Costs and expenses: Oil and gas production 378,872 313,158 336,406 General and administrative 26,409 18,932 14,542 Impairment of oil and gas properties -- -- 294,610 Depletion 26,140 95,436 315,761 --------- --------- --------- 431,421 427,526 961,319 --------- --------- --------- Net income (loss) $ 337,729 $ 17,320 $(563,993) ========= ========= ========= Allocation of net income (loss): General partners $ 88,128 $ 18,135 $ (49,472) ========= ========= ========= Limited partners $ 249,601 $ (815) $(514,521) ========= ========= ========= Net income (loss) per limited partnership interest $ 51.03 $ (.17) $ (105.20) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 11 266 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
General Limited partners partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 221,119 $ 921,541 $ 1,142,660 Distributions (20,715) (95,712) (116,427) Net loss (49,472) (514,521) (563,993) ----------- ----------- ----------- Partners' capital at December 31, 1998 150,932 311,308 462,240 Distributions (17,265) (50,502) (67,767) Net income (loss) 18,135 (815) 17,320 ----------- ----------- ----------- Partners' capital at December 31, 1999 151,802 259,991 411,793 Distributions (78,565) (229,765) (308,330) Net income 88,128 249,601 337,729 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 161,365 $ 279,827 $ 441,192 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 267 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 337,729 $ 17,320 $(563,993) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties -- -- 294,610 Depletion 26,140 95,436 315,761 Gain on disposition of assets -- -- (199) Changes in assets and liabilities: Accounts receivable (48,186) (24,834) 26,999 Accounts payable 398 1,026 (3,187) --------- --------- --------- Net cash provided by operating activities 316,081 88,948 69,991 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (11,581) (4,754) (6,820) Proceeds from asset dispositions -- 704 14,397 --------- --------- --------- Net cash provided by (used in) investing activities (11,581) (4,050) 7,577 --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (308,330) (67,767) (116,427) --------- --------- --------- Net increase (decrease) in cash (3,830) 17,131 (38,859) Cash at beginning of year 61,558 44,427 83,286 --------- --------- --------- Cash at end of year $ 57,728 $ 61,558 $ 44,427 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 13 268 PARKER & PARSLEY 82-I, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 82-I, Ltd. (the "Partnership") is a limited partnership organized in 1982 under the laws of the State of Texas. The Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P Employees 82-I, Ltd. ("EMPL"). The Partnership's managing general partner is Pioneer USA. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 14 269 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $294,610 related to its proved oil and gas properties during 1998. 15 270 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $663,714 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 337,729 $ 17,320 $(563,993) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 21,746 92,542 312,201 Impairment of oil and gas properties for financial reporting purposes -- -- 294,610 Loss on disposition of assets -- -- (116) Other, net (637) 77 786 --------- --------- --------- Net income per Federal income tax returns $ 358,838 $ 109,939 $ 43,488 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- ------ Development costs $ 11,581 $ 4,754 $6,820 ========= ========= ======
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 360,899 $ 360,899 Completed wells and equipment 9,540,202 9,528,621 ----------- ----------- 9,901,101 9,889,520 Accumulated depletion (9,613,644) (9,587,504) ----------- ----------- Net oil and gas properties $ 287,457 $ 302,016 =========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related 16 271 party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $162,023 $156,380 $150,391 Reimbursement of general and administrative expenses $ 22,916 $ 13,260 $ 11,786
Pioneer USA, EMPL and the Partnership are parties to the Partnership agreement. EMPL is a limited partnership in which Pioneer USA owns 77.5% and the remaining portion is owned by former affiliates. In addition, Pioneer USA owned 634 limited partner interests at January 1, 2001. The costs and revenues of the Partnership are allocated as follows:
General Limited partners partners -------- -------- Revenues: Proceeds from property dispositions prior to cost recovery 10% 90% All other Partnership revenues 25% 75% Costs and expenses: Lease acquisition costs, drilling and completion costs 10% 90% Operating costs, direct costs and general and administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------ -------- Net proved reserves at January 1, 1998 321,477 448,047 Revisions (230,755) (305,609) Production (25,898) (48,971) -------- --------
17 272 Net proved reserves at December 31, 1998 64,824 93,467 Revisions 280,613 443,568 Production (23,886) (48,380) -------- -------- Net proved reserves at December 31, 1999 321,551 488,655 Revisions 60,464 362,471 Production (24,158) (45,981) -------- -------- Net proved reserves at December 31, 2000 357,857 805,145 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.55 per barrel of oil, $13.69 per barrel of NGLs and $8.68 per mcf of gas, discounted at 10% was approximately $3,226,000 and undiscounted was $6,208,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 15,230 $ 8,078 $ 701
18 273 Future production costs (9,022) (5,386) (624) -------- -------- -------- 6,208 2,692 77 10% annual discount factor (2,982) (1,056) (11) -------- -------- -------- Standardized measure of discounted future net cash flows $ 3,226 $ 1,636 $ 66 ======== ======== ========
For the years ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (385) $ (128) $ (56) Net changes in prices and production costs 1,448 378 (898) Revisions of previous quantity estimates 927 2,018 (164) Accretion of discount 164 6 118 Changes in production rates, timing and other (564) (704) (113) ------- ------- ------- Change in present value of future net revenues 1,590 1,570 (1,113) ------- ------- ------- Balance, beginning of year 1,636 66 1,179 ------- ------- ------- Balance, end of year $ 3,226 $ 1,636 $ 66 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 ---- ---- ---- Plains Marketing, L.P. 68% 66% -- Genesis Crude Oil, L.P. -- -- 65% GPM Gas Corporation 13% 14% 13% Western Gas Resources, Inc. 1% 2% 10%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and GPM Gas Corporation were $54,651 and $30,037, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: General partners - The general partners of the Partnership are Pioneer USA and EMPL. 19 274 Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $9,782,000. During 1985, the Partnership received a total of $1,372,500 from its limited partners in response to an assessment by the managing general partner. Additionally, $650,000 was contributed by the managing general partner for limited partnership interests on unpaid assessments of which $500,000 was paid in 1985 and $150,000 in 1986. The general partners are required to contribute amounts equal to 10% of Partnership expenditures for lease acquisition, drilling and completion and 25% of direct, general and administrative and operating expenses. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 275 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts 21 276 Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B.S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 277 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. Under the Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition, drilling and completion costs and 20% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 20% of the Partnership's revenues. EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and 5% of its operating and general and administrative expenses. In return, EMPL is allocated 5% of the Partnership's revenues. EMPL does not receive any fees or reimbursements from the Partnership. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA and EMPL respectively own 80% and 20% of the general partners' interests in the Partnership. Pioneer USA owned 634 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 278 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $162,023 $156,380 $150,391 Reimbursement of general and administrative expenses $ 22,916 $ 13,260 $ 11,786
Under the limited partnership agreement, the general partners, Pioneer USA and EMPL, together pay 10% of the Partnership's acquisition, drilling and completion costs and 25% of its operating and general and administrative expenses. In return, they are allocated 25% of the Partnership's revenues. Twenty percent of the general partners' share of costs and revenues is allocated to EMPL and the remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" regarding the Partnership's participation with the managing general partner in oil and gas activities of the Partnership. 24 279 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 280 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 82-I, LTD. Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield --------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 23, 2001 ----------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001 ----------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001 ----------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 23, 2001 ----------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 23, 2001 ----------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 23, 2001 ----------------------------- Officer of Pioneer USA Rich Dealy
26 281 PARKER & PARSLEY 82-I, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3.1 Agreement of Limited Partnership of Parker - & Parsley 82-I, Ltd. incorporated by reference to Exhibit 4(e) of Partnership's Registration Statement on Form S-1 (Registration No. 2-75503A), as amended on February 4, 1982, the effective date thereof (hereinafter called, the Partnership's Registration Statement) 3.2 Amended and Restated Certificate of Limited - Partnership of Parker & Parsley 82-I, Ltd. incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the year ended December 31, 1983 4.1 Form of Subscription Agreement and Power - of Attorney incorporated by reference to Exhibit 4(b) of the Partnership's Registration Statement 4.2 Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4(d) of the Partnership's Registration Statement
27 282 PARKER & PARSLEY 82-I, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- ------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 421,846 $ 349,532 $ 763,858 $ 441,997 $ 392,883 $ 608,207 $ 710,173 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 43,618 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 294,610 $ 165,201 $ 2,277 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 199,638 $ 141,386 $ 337,729 $ 17,320 $ (563,993) $ (60,847) $ 312,582 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): General partners $ 51,562 $ 37,763 $ 88,128 $ 18,135 $ (49,472) $ 31,736 $ 92,811 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 148,076 $ 103,623 $ 249,601 $ (815) $ (514,521) $ (92,583) $ 219,771 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 30.28 $ 21.19 $ 51.03 $ (.17) $ (105.20) $ (18.93) $ 44.93 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 19.49 $ 21.00 $ 46.98 $ 10.33 $ 19.57 $ 47.31 $ 51.40(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 533,168 $ 437,924 $ 454,904 $ 425,107 $ 474,528 $1,158,135 $1,526,765 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $6.96 in 1996. 283 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 82-II, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 82-II, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 82-II, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 284 PARKER & PARSLEY 82-II, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 12,252 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 13,991 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,210 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 103.27 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.11 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 69.35 -- as of December 31, 2000 (c) $ 67.39 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 95.04 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 100.27 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 245 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership shall continue until terminated in accordance with the applicable provisions of its partnership agreement. -2- 285 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, 2001 Commission File No. 2-75530B PARKER & PARSLEY 82-II, LTD. (Exact name of Registrant as specified in its charter) Texas 75-1867115 -------------------------------------------- --------------------- (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 / / 286 PARKER & PARSLEY 82-II, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000........................... 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12
2 287 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 155,816 $ 77,911 Accounts receivable - oil and gas sales 91,508 107,778 ---------- ---------- Total current assets 247,324 185,689 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 8,307,568 8,305,901 Accumulated depletion (7,553,587) (7,531,290) ---------- ---------- Net oil and gas properties 753,981 774,611 ---------- ---------- $ 1,001,305 $ 960,300 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 17,621 $ 12,662 Partners' capital: General partners 134,008 121,968 Limited partners (6,126 interests) 849,676 825,670 ---------- ---------- 983,684 947,638 ---------- ---------- $ 1,001,305 $ 960,300 ========== ==========
The financial information included as of June 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. 3 288 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 172,463 $ 169,196 $ 384,143 $ 334,606 Interest 1,159 1,676 2,558 2,939 -------- -------- -------- -------- 173,622 170,872 386,701 337,545 -------- -------- -------- -------- Costs and expenses: Oil and gas production 79,225 72,440 184,165 147,258 General and administrative 5,282 5,668 13,211 10,827 Depletion 11,536 9,028 22,297 21,203 -------- -------- -------- -------- 96,043 87,136 219,673 179,288 -------- -------- -------- -------- Net income $ 77,579 $ 83,736 $ 167,028 $ 158,257 ======== ======== ======== ======== Allocation of net income: General partners $ 21,125 $ 22,288 $ 44,846 $ 42,745 ======== ======== ======== ======== Limited partners $ 56,454 $ 61,448 $ 122,182 $ 115,512 ======== ======== ======== ======== Net income per limited partnership interest $ 9.21 $ 10.03 $ 19.94 $ 18.86 ======== ======== ======== ========
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. 4 289 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
General Limited partners partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 121,968 $ 825,670 $ 947,638 Distributions (32,806) (98,176) (130,982) Net income 44,846 122,182 167,028 --------- --------- --------- Balance at June 30, 2001 $ 134,008 $ 849,676 $ 983,684 ========= ========= =========
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. 5 290 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 167,028 $ 158,257 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 22,297 21,203 Changes in assets and liabilities: Accounts receivable 16,270 (8,639) Accounts payable 4,959 5,136 --------- --------- Net cash provided by operating activities 210,554 175,957 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (1,667) (1,538) Cash flows used in financing activities: Cash distributions to partners (130,982) (180,435) --------- --------- Net increase (decrease) in cash 77,905 (6,016) Cash at beginning of period 77,911 91,672 --------- --------- Cash at end of period $ 155,816 $ 85,656 ========= =========
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. 6 291 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 82-II, Ltd. (the "Partnership") is a limited partnership organized in 1982 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 June 30, 2001 and for the three and six months ended June 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. However, these interim results are not necessarily indicative of results for a full year. Certain reclassifications may have been made to the June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 15% to $384,143 for the six months ended June 30, 2001 as compared to $334,606 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decline in production. For the six months ended June 30, 2001, 7,984 barrels 7 292 of oil, 2,949 barrels of natural gas liquids ("NGLs") and 22,031 mcf of gas were sold, or 14,605 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 8,628 barrels of oil, 3,976 barrels of NGLs and 18,498 mcf of gas were sold, or 15,687 BOEs. The average price received per barrel of oil increased $.28, or 1%, from $27.51 for the six months ended June 30, 2000 to $27.79 for the same period in 2001. The average price received per barrel of NGLs increased $3.52, or 26% from $13.63 during the six months ended June 30, 2000 to $17.15 for the same period in 2001. The average price received per mcf of gas increased 118% from $2.33 during the six months ended June 30, 2000 to $5.07 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $219,673 for the six months ended June 30, 2001 as compared to $179,288 for the same period in 2000, an increase of $40,385, or 23%. This increase was due to increases in production costs, general and administrative expenses ("G&A") and depletion. Production costs were $184,165 for the six months ended June 30, 2001 and $147,258 for the same period in 2000 resulting in a $36,907 increase, or 25%. This increase was primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with increased oil and gas revenues. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 22% from $10,827 for the six months ended June 30, 2000 to $13,211 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $22,297 for the six months ended June 30, 2001 as compared to $21,203 for the same period in 2000, an increase of $1,094, or 5%. This increase was primarily due to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 644 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 2% to $172,463 for the three months ended June 30, 2001, as compared to $169,196 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by lower average prices received for oil and a decrease in production. For the three months ended June 30, 2001, 3,738 barrels of oil, 1,577 barrels of NGLs and 10,439 mcf of gas were sold, or 7,055 BOEs. For the 8 293 three months ended June 30, 2000, 4,189 barrels of oil, 1,932 barrels of NGLs and 9,347 mcf of gas were sold, or 7,679 BOEs. The average price received per barrel of oil decreased $.34, or 1%, from $27.76 for the three months ended June 30, 2000 to $27.42 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $.95, or 7%, from $14.12 during the three months ended June 30, 2000 to $15.07 for the three months ended June 30, 2001. The average price received per mcf of gas increased 62% to $4.43 during the three months ended June 30, 2001 from $2.74 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $96,043 for the three months ended June 30, 2001 as compared to $87,136 for the same period in 2000, an increase of $8,907, or 10%. This increase was due to increases in production costs and depletion, offset by a decline in G&A. Production costs were $79,225 for the three months ended June 30, 2001 and $72,440 for the same period in 2000 resulting in a $6,785 increase, or 9%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production. During this period, G&A decreased 7% from $5,668 for the three months ended June 30, 2000 to $5,282 for the same period in 2001 due to a decrease in audit and tax fees. Depletion was $11,536 for the three months ended June 30, 2001 as compared to $9,028 for the same period in 2000, an increase of $2,508, or 28%. This increase was primarily due to a decline in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 451 barrels for the three months ended June 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 $34,597 during the six months ended June 30, 2001 from the same period in 2000. This increase was due to an increase of $49,156 in oil and gas sales receipts and a reduction of $24,732 in working capital, offset by increases in production costs of $36,907 and G&A expenses of $2,384. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $66,765 to oil and gas receipts, offset by $17,609 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. 9 294 Net Cash Used in Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 were related to the upgrades of oil and gas equipment on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $130,982, of which $32,806 was distributed to the general partners and $98,176 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $180,435, of which $45,080 was distributed to the general partners and $135,355 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 295 --------------- (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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 296 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) SIGNATURES 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 82-II, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy --------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 297 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 2-75530B PARKER & PARSLEY 82-II, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-1867115 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code: (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($2,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $11,800,000. As of March 8, 2001, the number of outstanding limited partnership interests was 6,126. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None Parts I and II of this annual report on Form 10-K (the "Report") contain 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. See "Item 1. Business" for a description of various factors that could materially affect the ability of the Partnership to achieve the anticipated results described in the forward looking statements. 298 PART I ITEM 1. BUSINESS Parker & Parsley 82-II, Ltd. (the "Partnership") is a limited partnership organized in 1982 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA") and its co-general partner is P&P Employees 82-II, Ltd. ("EMPL"), a Texas limited partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 6,126 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 70% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and 2 299 ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental and exploratory oil and gas prospects located in Texas and New Mexico were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 52 oil and gas wells. At December 31, 2000, the Partnership had 16 producing oil and gas wells. Two wells were plugged and abandoned, five wells were dry holes and 29 wells have been sold. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 300 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 6,126 outstanding limited partnership interests held of record by 772 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the general partners, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $270,025 and $93,647, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Operating results: ----------------- Oil and gas sales $ 730,936 $ 477,533 $ 379,887 $ 598,339 $ 732,599 ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ 45,027 ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 65,229 $ 310,732 $ -- ========== ========== ========== ========== ========== Net income (loss) $ 350,536 $ 120,353 $ (131,488) $ (93,386) $ 322,918 ========== ========== ========== ========== ========== Allocation of net income (loss): General partner $ 94,215 $ 38,680 $ 2,863 $ 30,221 $ 98,377 ========== ========== ========== ========== ========== Limited partners $ 256,321 $ 81,673 $ (134,351) $ (123,607) $ 224,541 ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 41.84 $ 13.33 $ (21.93) $ (20.18) $ 36.65 ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 44.08 $ 15.29 $ (46.67) $ 43.00 $ 49.38 (a) ========== ========== ========== ========== ========== At year end: ----------- Identifiable assets $ 960,300 $ 971,351 $ 971,390 $1,456,326 $1,893,741 ========== ========== ========== ========== ==========
--------------- (a) Including litigation settlement per limited partnership interest of $6.02 in 1996. 4 301 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 53% to $730,936 for 2000 as compared to $477,533 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 17,293 barrels of oil, 7,629 barrels of natural gas liquids ("NGLs") and 35,900 mcf of gas were sold, or 30,905 barrel of oil equivalents ("BOEs"). In 1999, 17,967 barrels of oil, 9,587 barrels of NGLs and 42,858 mcf of gas were sold, or 34,697 BOEs. 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 increased $12.39, or 73%, from $17.08 in 1999 to $29.47 in 2000. The average price received per barrel of NGLs increased $5.21, or 53%, from $9.80 in 1999 to $15.01 in 2000. The average price received per mcf of gas increased 66% from $1.79 in 1999 to $2.98 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $387,226 as compared to $361,025 in 1999, an increase of $26,201, or 7%. This increase was due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $316,735 in 2000 and $280,719 in 1999, resulting in an increase of $36,016, or 13%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 28%, from $19,626 in 1999 to $25,120 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $21,928 in 2000 and $14,326 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $45,371 in 2000 as compared to $60,680 in 1999, a decrease of $15,309, or 25%. This decrease was primarily due to a 21,082 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 26% to $477,533 from $379,887 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 17,967 barrels of oil, 9,587 barrels of NGLs and 42,858 mcf of gas were sold, or 34,697 BOEs. In 1998, 19,042 barrels of oil, 8,812 barrels of NGLs and 41,862 mcf of gas were sold, or 5 302 34,831 BOEs. The average price received per barrel of oil increased $3.94, or 30%, from $13.14 in 1998 to $17.08 in 1999. The average price received per barrel of NGLs increased $2.87, or 41%, from $6.93 in 1998 to $9.80 in 1999. The average price received per mcf of gas increased 9% from $1.64 in 1998 to $1.79 in 1999. A gain on disposition of assets of $1,281 was recognized during 1998 from post closing adjustments received from the sale of six oil and gas wells and an overriding royalty interest in one well during 1997. Total costs and expenses decreased in 1999 to $361,025 as compared to $523,894 in 1998, a decrease of $162,869, or 31%. The decrease was primarily due to declines in depletion and the impairment of oil and gas properties, offset by increases in production costs and G&A expenses. Production costs were $280,719 in 1999 and $274,382 in 1998, resulting in an increase of $6,337, or 2%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production and an increase in production taxes due to increased oil and gas revenues, offset by a decline in ad valorem taxes. During this period, G&A increased 45% from $13,493 in 1998 to $19,626 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $14,326 in 1999 and $11,397 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $65,229 related to its oil and gas properties during 1998. Depletion was $60,680 in 1999 compared to $170,790 in 1998, a decrease of $110,110, or 64%. This decrease was the result of an increase in proved reserves of 182,544 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization 6 303 of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $202,645 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $256,384, offset by increases in production costs paid of $36,016, G&A expenses paid of $5,494 and working capital of $12,229. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $326,338 to oil and gas receipts, offset by $69,954 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Proceeds from asset dispositions of $422 in 1999 were from equipment credits received on active properties. During 1998, proceeds from disposition of assets of $153,683 were primarily from the sale of six oil and gas wells during 1997. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $361,123, of which $91,098 was distributed to the general partners and $270,025 to the limited partners. In 1999, cash distributions to the partners were $124,365, of which $30,718 was distributed to the general partners and $93,647 to the limited partners. 7 304 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 82-II, Ltd: Independent Auditors' Report............................................ 9 Balance Sheets as of December 31, 2000 and 1999......................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................... 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998...................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Notes to Financial Statements........................................... 14
8 305 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 82-II, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 82-II, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 82-II, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 306 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 77,911 $ 91,672 Accounts receivable - oil and gas sales 107,778 68,374 ----------- ----------- Total current assets 185,689 160,046 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 8,305,901 8,297,224 Accumulated depletion (7,531,290) (7,485,919) ----------- ----------- Net oil and gas properties 774,611 811,305 ----------- ----------- $ 960,300 $ 971,351 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 12,662 $ 13,126 Partners' capital: General partners 121,968 118,851 Limited partners (6,126 interests) 825,670 839,374 ----------- ----------- 947,638 958,225 ----------- ----------- $ 960,300 $ 971,351 =========== ===========
The accompanying notes are an integral part of these financial statements. 10 307 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 730,936 $ 477,533 $ 379,887 Interest 6,826 3,845 11,238 Gain on disposition of assets -- -- 1,281 --------- --------- --------- 737,762 481,378 392,406 --------- --------- --------- Costs and expenses: Oil and gas production 316,735 280,719 274,382 General and administrative 25,120 19,626 13,493 Impairment of oil and gas properties -- -- 65,229 Depletion 45,371 60,680 170,790 --------- --------- --------- 387,226 361,025 523,894 --------- --------- --------- Net income (loss) $ 350,536 $ 120,353 $(131,488) ========= ========= ========= Allocation of net income (loss): General partners $ 94,215 $ 38,680 $ 2,863 ========= ========= ========= Limited partners $ 256,321 $ 81,673 $(134,351) ========= ========= ========= Net income (loss) per limited partnership interest $ 41.84 $ 13.33 $ (21.93) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 11 308 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
General Limited partners partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 167,998 $ 1,271,605 $ 1,439,603 Distributions (59,972) (285,906) (345,878) Net income (loss) 2,863 (134,351) (131,488) ----------- ----------- ----------- Partners' capital at December 31, 1998 110,889 851,348 962,237 Distributions (30,718) (93,647) (124,365) Net income 38,680 81,673 120,353 ----------- ----------- ----------- Partners' capital at December 31, 1999 118,851 839,374 958,225 Distributions (91,098) (270,025) (361,123) Net income 94,215 256,321 350,536 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 121,968 $ 825,670 $ 947,638 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 309 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 350,536 $ 120,353 $(131,488) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties -- -- 65,229 Depletion 45,371 60,680 170,790 Gain on disposition of assets -- -- (1,281) Changes in assets and liabilities: Accounts receivable (39,404) (31,612) 23,310 Accounts payable (464) 3,973 (7,570) --------- --------- --------- Net cash provided by operating activities 356,039 153,394 118,990 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (8,677) (2,053) (13,600) Proceeds from asset dispositions -- 422 153,683 --------- --------- --------- Net cash provided by (used in) investing activities (8,677) (1,631) 140,083 --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (361,123) (124,365) (345,878) --------- --------- --------- Net increase (decrease) in cash (13,761) 27,398 (86,805) Cash at beginning of year 91,672 64,274 151,079 --------- --------- --------- Cash at end of year $ 77,911 $ 91,672 $ 64,274 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 13 310 PARKER & PARSLEY 82-II, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 82-II, Ltd. (the "Partnership") is a limited partnership organized in 1982 under the laws of the State of Texas. The Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P Employees 82-II, Ltd. ("EMPL"). The Partnership's managing general partner is Pioneer USA. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 14 311 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the 15 312 Partnership recognized a non-cash impairment provision of $65,229 related to its proved oil and gas properties during 1998. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $425,788 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 350,536 $ 120,353 $(131,488) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 39,685 55,288 163,319 Impairment of oil and gas properties for financial reporting purposes -- -- 65,229 Other, net (932) 209 217 --------- --------- --------- Net income per Federal income tax returns $ 389,289 $ 175,850 $ 97,277 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- ------- Development costs $ 8,677 $ 2,053 $13,600 ========= ========= =======
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 415,980 $ 415,980 Completed wells and equipment 7,889,921 7,881,244 ----------- ----------- 8,305,901 8,297,224 Accumulated depletion (7,531,290) (7,485,919) ----------- ----------- Net oil and gas properties $ 774,611 $ 811,305 =========== ===========
16 313 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $143,855 $139,170 $133,844 Reimbursement of general and administrative expenses $ 21,928 $ 14,326 $ 11,397
Pioneer USA, EMPL and the Partnership are parties to the Partnership agreement. EMPL is a limited partnership in which Pioneer USA owns 83% and the remaining portion is owned by former affiliates. In addition, Pioneer USA owned 226 limited partner interests at January 1, 2001. The costs and revenues of the Partnership are allocated as follows:
General Limited partners partners -------- -------- Revenues: Proceeds from property dispositions prior to cost recovery 10% 90% All other Partnership revenues 25% 75% Costs and expenses: Lease acquisition costs, drilling and completion costs 10% 90% Operating costs, direct costs and general and administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 314
Oil and NGLs Gas (bbls) (mcf) ------------ -------- Net proved reserves at January 1, 1998 376,355 512,848 Revisions (163,438) (164,998) Production (27,854) (41,862) -------- -------- Net proved reserves at December 31, 1998 185,063 305,988 Revisions 288,622 425,997 Production (27,554) (42,858) -------- -------- Net proved reserves at December 31, 1999 446,131 689,127 Revisions (13,008) (29,574) Production (24,922) (35,900) -------- -------- Net proved reserves at December 31, 2000 408,201 623,653 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.58 per barrel of oil, $13.60 per barrel of NGLs and $8.05 per mcf of gas, discounted at 10% was approximately $3,222,000 and undiscounted was $6,505,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 18 315
For the years ended December 31, ---------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 14,233 $ 11,083 $ 2,024 Future production costs (7,728) (6,439) (1,464) -------- -------- -------- 6,505 4,644 560 10% annual discount factor (3,283) (2,235) (228) -------- -------- -------- Standardized measure of discounted future net cash flows $ 3,222 $ 2,409 $ 332 ======== ======== ========
For the years ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (414) $ (197) $ (106) Net changes in prices and production costs 1,300 807 (871) Revisions of previous quantity estimates (118) 1,768 (241) Accretion of discount 240 33 147 Changes in production rates, timing and other (195) (334) (72) ------- ------- ------- Change in present value of future net revenues 813 2,077 (1,143) ------- ------- ------- Balance, beginning of year 2,409 332 1,475 ------- ------- ------- Balance, end of year $ 3,222 $ 2,409 $ 332 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 70% 65% - Genesis Crude Oil, L.P. - - 66% Western Gas Resources, Inc. 2% 5% 21%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $56,201 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: General partners - The general partners of the Partnership are Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the power and authority to manage, control 19 316 and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $12,252,000. The general partners are required to contribute amounts equal to 10% of Partnership expenditures for lease acquisition, drilling and completion and 25% of direct, general and administrative and operating expenses. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 317 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 318 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 319 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. Under the Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition, drilling and completion costs and 20% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 20% of the Partnership's revenues. EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and 5% of its operating and general and administrative expenses. In return, EMPL is allocated 5% of the Partnership's revenues. EMPL does not receive any fees or reimbursements from the Partnership. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA and EMPL respectively own 80% and 20% of the general partners' interests in the Partnership. Pioneer USA owned 226 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 320 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the general partners during the years ended December 31:
2000 1999 1998 --------- --------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 143,855 $ 139,170 $133,844 Reimbursement of general and administrative expenses $ 21,928 $ 14,326 $ 11,397
Under the limited partnership agreement, the general partners, Pioneer USA and EMPL, together pay 10% of the Partnership's acquisition, drilling and completion costs and 25% of its operating and general and administrative expenses. In return, they are allocated 25% of the Partnership's revenues. Twenty percent of the general partner's share of costs and revenues is allocated to EMPL and the remainder is allocated to Pioneer USA. Certain former affiliates of the managing general partner are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Partnership. 24 321 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 322 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 82-II, LTD. Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield -------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 23, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 23, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 23, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 23, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
26 323 PARKER & PARSLEY 82-II, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3.1 Agreement of Limited Partnership of - Parker & Parsley 82-II, Ltd. incorporated by reference to Exhibit 4(e) of Partnership's Registration Statement on Form S-1 (Registration No. 2-75503B), as amended on February 4, 1982, the effective date thereof (hereinafter called, the Partnership's Registration Statement) 3.2 Amended and Restated Certificate of - Limited Partnership of Parker & Parsley 82-II, Ltd. incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the year ended December 31, 1983 4.1 Form of Subscription Agreement and Power - of Attorney incorporated by reference to Exhibit 4(b) of the Partnership's Registration Statement 4.2 Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4(d) of the Partnership's Registration Statement
27 324 PARKER & PARSLEY 82-II, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 384,143 $ 334,606 $ 730,936 $ 477,533 $ 379,887 $ 598,339 $ 732,599 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 45,027 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 65,229 $ 310,732 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 167,028 $ 158,257 $ 350,536 $ 120,353 $ (131,488) $ (93,386) $ 322,918 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): General partners $ 44,846 $ 42,745 $ 94,215 $ 38,680 $ 2,863 $ 30,221 $ 98,377 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 122,182 $ 115,512 $ 256,321 $ 81,673 $ (134,351) $ (123,607) $ 224,541 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 19.94 $ 18.86 $ 41.84 $ 13.33 $ (21.93) $ (20.18) $ 36.65 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 16.03 $ 22.10 $ 44.08 $ 15.29 $ (46.67) $ 43.00 $ 49.38(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,001,305 $ 954,309 $ 960,300 $ 971,351 $ 971,390 $1,456,326 $1,893,741 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $6.02 in 1996. 325 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 82-III, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 82-III, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 82-III, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 326 PARKER & PARSLEY 82-III, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 6,882 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 6,781 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 788 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 121.71 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.16 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 59.63 -- as of December 31, 2000 (c) $ 55.84 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 111.16 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 118.07 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 220 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent the estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership shall continue until terminated in accordance with the applicable provisions of its partnership agreement. -2- 327 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 328 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 115,914 $ 46,188 Accounts receivable - oil and gas sales 52,221 69,903 ---------- ---------- Total current assets 168,135 116,091 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,970,397 5,970,397 Accumulated depletion (5,645,635) (5,634,468) ---------- ---------- Net oil and gas properties 324,762 335,929 ---------- ---------- $ 492,897 $ 452,020 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 13,954 $ 9,780 Partners' capital: General partners 68,552 57,956 Limited partners (3,441 interests) 410,391 384,284 ---------- ---------- 478,943 442,240 ---------- ---------- $ 492,897 $ 452,020 ========== ==========
The financial information included as of June 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. 2 329 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 130,711 $ 126,967 $ 271,996 $ 263,297 Interest 766 1,091 1,659 1,896 -------- -------- -------- -------- 131,477 128,058 273,655 265,193 -------- -------- -------- -------- Costs and expenses: Oil and gas production 59,272 56,857 122,071 108,862 General and administrative 3,923 4,126 9,433 8,308 Depletion 5,323 5,572 11,167 11,991 -------- -------- -------- -------- 68,518 66,555 142,671 129,161 -------- -------- -------- -------- Net income $ 62,959 $ 61,503 $ 130,984 $ 136,032 ======== ======== ======== ======== Allocation of net income: General partners $ 16,538 $ 16,212 $ 34,166 $ 35,807 ======== ======== ======== ======== Limited partners $ 46,421 $ 45,291 $ 96,818 $ 100,225 ======== ======== ======== ======== Net income per limited partnership interest $ 13.49 $ 13.17 $ 28.14 $ 29.13 ======== ======== ======== ========
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. 3 330 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
General Limited partners partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 57,956 $ 384,284 $ 442,240 Distributions (23,570) (70,711) (94,281) Net income 34,166 96,818 130,984 -------- --------- --------- Balance at June 30, 2001 $ 68,552 $ 410,391 $ 478,943 ======== ========= =========
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. 4 331 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ----------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 130,984 $ 136,032 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 11,167 11,991 Changes in assets and liabilities: Accounts receivable 17,682 (13,930) Accounts payable 4,174 2,771 -------- -------- Net cash provided by operating activities 164,007 136,864 -------- -------- Cash flows used in investing activities: Additions to oil and gas properties - (2,799) Cash flows used in financing activities: Cash distributions to partners (94,281) (138,779) -------- -------- Net increase (decrease) in cash 69,726 (4,714) Cash at beginning of period 46,188 53,335 -------- -------- Cash at end of period $ 115,914 $ 48,621 ======== ========
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. 5 332 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 82-III, Ltd. (the "Partnership") is a limited partnership organized in 1982 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 3% to $271,996 for the six months ended June 30, 2001 as compared to $263,297 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decline in production. For the six months ended June 30, 2001, 6,884 barrels 6 333 of oil, 1,723 barrels of natural gas liquids ("NGLs") and 12,402 mcf of gas were sold, or 10,674 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 7,134 barrels of oil, 3,410 barrels of NGLs and 11,409 mcf of gas were sold, or 12,446 BOEs. The average price received per barrel of oil increased slightly from $27.90 for the six months ended June 30, 2000 to $27.93 for the same period in 2001. The average price received per barrel of NGLs increased $2.72, or 22%, from $12.30 during the six months ended June 30, 2000 to $15.02 for the same period in 2001. The average price received per mcf of gas increased 123% from $1.95 during the six months ended June 30, 2000 to $4.34 in 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $142,671 for the six months ended June 30, 2001 as compared to $129,161 for the same period in 2000, an increase of $13,510, or 10%. This increase was due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $122,071 for the six months ended June 30, 2001 and $108,862 for the same period in 2000, resulting in a $13,209 increase, or 12%. The increase was due to additional well maintenance costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 14% from $8,308 for the six months ended June 30, 2000 to $9,433 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $11,167 for the six months ended June 30, 2001 as compared to $11,991 for the same period in 2000, a decrease of $824, or 7%. This decrease was due to a decline in oil production of 250 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 3% to $130,711 for the three months ended June 30, 2001 as compared to $126,967 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices received for oil. For the three months ended June 30, 2001, 3,306 barrels of oil, 1,102 7 334 barrels of NGLs and 7,207 mcf of gas were sold, or 5,609 BOEs. For the three months ended June 30, 2000, 3,396 barrels of oil, 1,533 barrels of NGLs and 5,105 mcf of gas were sold, or 5,780 BOEs. The average price received per barrel of oil decreased $.96, or 3%, from $28.19 for the three months ended June 30, 2000 to $27.23 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.55, or 12%, from $12.41 during the three months ended June 30, 2000 to $13.96 for the same period in 2001. The average price received per mcf of gas increased 47% to $3.52 during the three months ended June 30, 2001 from $2.39 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $68,518 for the three months ended June 30, 2001 as compared to $66,555 for the same period in 2000, an increase of $1,963, or 3%. This increase was due to higher production costs, offset by declines in depletion and G&A. Production costs were $59,272 for the three months ended June 30, 2001 and $56,857 for the same period in 2000 resulting in a $2,415 increase, or 4%. The increase was due to additional well maintenance costs incurred to stimulate well production and higher production taxes due to higher gas and NGL prices. During this period, G&A decreased 5% from $4,126 for the three months ended June 30, 2000 to $3,923 for the same period in 2001, primarily due to less audit and tax expenses. Depletion was $5,323 for the three months ended June 30, 2001 as compared to $5,572 for the same period in 2000, a decrease of $249, or 4%. This decrease was attributable to a decline in oil production of 90 for the three months ended June 30, 2001 as compared to the three months ended June 30, 2000. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $27,143 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $8,462 and a reduction in working capital of $33,015, offset by increases in production costs of $13,209 and G&A expenses of $1,125. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $36,705 to oil and gas receipts, offset by $28,243 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. 8 335 Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2000 were related to upgrades of oil and gas equipment on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $94,281, of which $23,570 was distributed to the general partners and $70,711 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $138,779, of which $33,539 was distributed to the general partners and $105,240 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 9 336 --------------- (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. 10 337 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 338 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 82-III, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 82-III, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 82-III, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 339 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------- ------- ASSETS Current assets: Cash $ 46,188 $ 53,335 Accounts receivable - oil and gas sales 69,903 47,611 ------- ------- Total current assets 116,091 100,946 ------- ------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,970,397 5,967,913 Accumulated depletion (5,634,468) (5,611,986) Net oil and gas properties 335,929 355,927 ------- ------- $ 452,020 $ 456,873 ======== ======== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 9,780 $ 11,302 Partners' capital: General partners 57,956 54,214 Limited partners (3,441 interests) 384,284 391,357 ------- ------- 442,240 445,571 $ 452,020 $ 456,873 ======== ========
The accompanying notes are an integral part of these financial statements. 3 340 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- -------- --------- Revenues: Oil and gas $ 562,399 $ 340,246 $ 253,873 Interest 4,310 2,124 3,120 Gain on disposition of assets - 1,922 634 ------- ------ -------- 566,709 344,292 257,627 ------- ------ -------- Costs and expenses: Oil and gas production 222,803 198,571 202,485 General and administrative 19,194 14,161 9,538 Impairment of oil and gas properties - - 277,671 Depletion 22,482 46,605 252,951 ------- ------ -------- 264,479 259,337 742,645 ------- ------- -------- Net income (loss) $ 302,230 $ 84,955 $ (485,018) ======= ====== ======== Allocation of net income (loss): General partners $ 78,705 $ 27,431 $ (41,756) ======= ====== ======== Limited partners $ 223,525 $ 57,524 $ (443,262) ======= ====== ======== Net income (loss) per limited partnership interest $ 64.96 $ 16.72 $ (128.82) ======= ====== ========
The accompanying notes are an integral part of these financial statements. 4 341 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
General Limited partners partners Total --------- ---------- --------- Partners' capital at January 1, 1998 $ 106,887 $ 9 13,918 $ 1,020,805 Distributions (16,245) (70,235) (86,480) Net loss (41,756) (443,262) (485,018) -------- -------- --------- Partners' capital at December 31, 1998 48,886 400,421 449,307 Distributions (22,103) (66,588) (88,691) Net income 27,431 57,524 84,955 -------- -------- --------- Partners' capital at December 31, 1999 54,214 391,357 445,571 Distributions (74,963) (230,598) (305,561) Net income 78,705 223,525 302,230 -------- -------- --------- Partners' capital at December 31, 2000 $ 57,956 $ 384,284 $ 442,240 ======== ======== =========
The accompanying notes are an integral part of these financial statements. 5 342 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------- -------- --------- Cash flows from operating activities: Net income (loss) $ 302,230 $ 84,955 $ (485,018) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on disposition of assets - (1,922) (634) Impairment of oil and gas properties - - 277,671 Depletion 22,482 46,605 252,951 Changes in assets and liabilities: Accounts receivable (22,292) (24,579) 19,893 Accounts payable (1,522) 5,081 (6,865) -------- -------- --------- Net cash provided by operating activities 300,898 110,140 57,998 -------- -------- --------- Cash flows from investing activities: Additions to oil and gas properties (2,484) (1,281) (4,114) Proceeds from disposition of assets - 2,415 23,382 -------- -------- --------- Net cash provided by (used in) investing activities (2,484) 1,134 19,268 -------- -------- --------- Cash flows used in financing activities: Cash distributions to partners (305,561) (88,691) (86,480) -------- -------- --------- Net increase (decrease) in cash (7,147) 22,583 (9,214) Cash at beginning of year 53,335 30,752 39,966 -------- -------- --------- Cash at end of year $ 46,188 $ 53,335 $ 30,752 ======== ======== =========
The accompanying notes are an integral part of these financial statements. 6 343 PARKER & PARSLEY 82-III, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 82-III, Ltd. (the "Partnership") is a Texas limited partnership organized in 1982 under the laws of the State of Texas. The Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P Employees 82-III, Ltd. ("EMPL"). The Partnership's managing general partner is Pioneer USA. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 7 344 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 8 345 in the industry. As a result, the Partnership recognized a non-cash impairment provision of $277,671 related to its proved oil and gas properties during 1998. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $410,896 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------- ------- ------- Net income (loss) per statements of operations $ 302,230 $ 84,955 $ (485,018) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 18,732 42,255 245,110 Impairment of oil and gas properties for financial reporting purposes - - 277,671 Other, net (570) (1,597) 787 -------- ------- -------- Net income per Federal income tax returns $ 320,392 $ 125,613 $ 38,550 ======== ======= ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ------- ------ ------- Development costs $ 2,484 $ 1,281 $ 4,114 ======= ====== =======
Capitalized oil and gas properties consist of the following:
2000 1999 --------- ---------- Proved properties: Property acquisition costs $ 348,798 $ 348,798 Completed wells and equipment 5,621,599 5,619,115 ---------- ----------- 5,970,397 5,967,913 Accumulated depletion (5,634,468) (5,611,986) ---------- ----------- Net oil and gas properties $ 335,929 $ 355,927 ========== ===========
9 346 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ------- ------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $105,725 $102,247 $ 97,602 Reimbursement of general and administrative expenses $16,872 $10,207 $ 7,802
Pioneer USA, EMPL and the Partnership are parties to the Partnership agreement. EMPL is a limited partnership in which Pioneer USA owns 81% and the remaining portion is owned by former affiliates. Pioneer USA owned 205.34 limited partner interests at January 1, 2001. The costs and revenues of the Partnership are allocated as follows:
General Limited partners partners -------- -------- Revenues: Proceeds from property dispositions prior to cost recovery 10% 90% All other Partnership revenues 25% 75% Costs and expenses: Lease acquisition costs, drilling and completion costs 10% 90% Operating costs, direct costs and general and administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 347
Oil and NGLs Gas (bbls) (mcf) ------------ ------------ Net proved reserves at January 1, 1998 290,644 256,851 Revisions (204,881) Production (19,540) (17,680) --------- -------- Net proved reserves at December 31, 1998 66,223 74,429 Revisions 243,433 312,763 Production (20,801) (23,061) --------- ------ Net proved reserves at December 31, 1999 288,855 364,131 Revisions 42,883 (44,362) Production (20,646) (21,480) --------- ------ Net proved reserves at December 31, 2000 311,092 298,289 ========= ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.66 per barrel of NGLs and $7.61 per mcf of gas, discounted at 10% was approximately $2,053,000 and undiscounted was $3,888,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 11 348
For the years ended December 31, -------------------------------- 2000 1999 1998 ------ ------- ------ (in thousands) Oil and gas producing activities: Future cash inflows $ 9,373 $ 7,135 $ 709 Future production costs (5,485) (4,540) (606) ------ ------- ------ 3,888 2,595 103 10% annual discount factor (1,835) (1,113) (26) ------ ------- ------ Standardized measure of discounted future net cash flows $ 2,053 $ 1,482 $ 77 ====== ======= ======
For the years ended December 31, -------------------------------- 2000 1999 1998 ------ ------- ------ (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs$ (340) $ (141) $ (51) Net changes in prices and production costs 711 355 (718) Revisions of previous quantity estimates 219 1,650 (182) Accretion of discount 148 8 102 Changes in production rates, timing and other (167) (467) (96) Change in present value of future net revenues 571 1,405 (945) Balance, beginning of year 1,482 77 1,022 ------ ------- ------ Balance, end of year $ 2,053 $ 1,482 $ 77 ======= ======== =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 60% 56% - TEPPCO Crude Oil LLC 14% 15% - Genesis Crude Oil, L.P. - - 77%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and TEPPCO Crude Oil LLC were $31,458 and $4,158, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: General partners - The general partners of the Partnership are Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly 12 349 by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $6,882,000. The general partners are required to contribute amounts equal to 10% of Partnership expenditures for lease acquisition, drilling and completion and 25% of direct, general and administrative and operating expenses. 13 350 PARKER & PARSLEY 82-III, LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 65% to $562,399 for 2000 as compared to $340,246 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 14,019 barrels of oil, 6,627 barrels of natural gas liquids ("NGLs") and 21,480 mcf of gas were sold, or 24,226 barrel of oil equivalents ("BOEs"). In 1999, 14,043 barrels of oil, 6,758 barrels of NGLs and 23,061 mcf of gas were sold, or 24,645 BOEs. 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 increased $12.54, or 73%, from $17.13 in 1999 to $29.67 in 2000. The average price received per barrel of NGLs increased $4.73, or 52%, from $9.13 in 1999 to $13.86 in 2000. The average price received per mcf of gas increased 54% from $1.65 in 1999 to $2.54 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $1,922 was recognized during 1999 from equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $264,479 as compared to $259,337 in 1999, an increase of $5,142, or 2%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $222,803 in 2000 and $198,571 in 1999, resulting in a $24,232 increase, or 12%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 36% from $14,161 in 1999 to $19,194 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $16,872 in 2000 and $10,207 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $22,482 in 2000 as compared to $46,605 in 1999, representing a decrease of $24,123, or 52%. This decrease primarily due to a 36,746 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 351 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 34% to $340,246 from $253,873 in 1998. The increase in revenues resulted from higher average prices received and an increase in production. In 1999, 14,043 barrels of oil, 6,758 barrels of NGLs and 23,061 mcf of gas were sold, or 24,645 BOEs. In 1998, 14,727 barrels of oil, 4,813 barrels of NGLs and 17,680 mcf of gas were sold, or 22,487 BOEs. The average price received per barrel of oil increased $3.82, or 29%, from $13.31 in 1998 to $17.13 in 1999. The average price received per barrel of NGLs increased $2.71, or 42%, from $6.42 in 1998 to $9.13 in 1999. The average price received per mcf of gas increased 8% from $1.53 in 1998 to $1.65 in 1999. A gain on disposition of assets of $1,922 and $634 was recognized during 1999 and 1998 from salvage value received on various asset dispositions. Total costs and expenses decreased in 1999 to $259,337 as compared to $742,645 in 1998, a decrease of $483,308, or 65%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $198,571 in 1999 and $202,485 in 1998, resulting in a $3,914 decrease, or 2%. The decrease was due to declines in workover costs and ad valorem taxes, offset by an increase in production taxes due to increase oil and gas sales. During this period, G&A increased 48% from $9,538 in 1998 to $14,161 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $10,207 in 1999 and $7,802 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $277,671 related to its oil and gas properties during 1998. Depletion was $46,605 in 1999 compared to $252,951 in 1998, representing a decrease of $206,346, or 82%. This decrease was the result of an increase in proved reserves of 164,606 barrels of oil during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 352 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $190,758 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $224,339, offset by increases in production costs paid of $24,233, G&A expenses paid of $5,032 and working capital of $4,316. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $230,886 to oil and gas receipts, offset by $6,547 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to upgrades of equipment on various oil and gas properties. Proceeds from disposition of assets of $2,415 were recognized during 1999 from salvage value received on disposition of equipment primarily on one oil and gas well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $305,561, of which $74,963 was distributed to the general partners and $230,598 to the limited partners. In 1999, cash distributions to the partners were $88,691, of which $22,103 was distributed to the general partners and $66,588 to the limited partners. 353 PARKER & PARSLEY 82-III, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 271,996 $ 263,297 $ 562,399 $ 340,246 $ 253,873 $ 456,184 $ 542,331 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 277,671 $ 126,140 $ 5,776 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 36,644 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 130,984 $ 136,032 $ 302,230 $ 84,955 $ (485,018) $ (87,890) $ 197,417 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): General partners $ 34,166 $ 35,807 $ 78,705 $ 27,431 $ (41,756) $ 14,576 $ 64,259 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 96,818 $ 100,225 $ 223,525 $ 57,524 $ (443,262) $ (102,466) $ 133,158 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 28.14 $ 29.13 $ 64.96 $ 16.72 $ (128.82) $ (29.78) $ 38.70 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 20.55 $ 30.58 $ 67.01 $ 19.35 $ 20.41 $ 43.29 $ 49.15(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 492,897 $ 456,897 $ 452,020 $ 456,873 $ 455,528 $1,033,891 $1,323,367 ========== ========== ========== ========== ========== ========== ==========
--------- (a) Including litigation settlement per limited partnership interest of $10.65 in 1996. 354 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 83-A, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 83-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 83-A, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 355 PARKER & PARSLEY 83-A, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 19,505 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 25,908 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 2,661 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 142.17 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.42 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 80.97 -- as of December 31, 2000 (c) $ 76.56 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 130.83 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 138.03 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 275 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent the estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership shall continue until terminated in accordance with the applicable provisions of its partnership agreement. -2- 356 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, 2001 Commission File No. 2-81398A PARKER & PARSLEY 83-A, LTD. (Exact name of Registrant as specified in its charter) Texas 75-1891384 -------------------------------------------- ---------------------- (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 / / 357 PARKER & PARSLEY 83-A, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................. 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................. 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000......................... 6 Notes to Financial Statements.......................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K....................... 11 Signatures............................................. 12
2 358 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 392,584 $ 169,055 Accounts receivable - oil and gas sales 229,511 279,239 ----------- ----------- Total current assets 622,095 448,294 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 16,902,945 16,901,194 Accumulated depletion (15,665,442) (15,622,262) ----------- ----------- Net oil and gas properties 1,237,503 1,278,932 ----------- ----------- $ 1,859,598 $ 1,727,226 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 43,464 $ 33,783 Partners' capital: General partners 236,728 200,131 Limited partners (19,505 interests) 1,579,406 1,493,312 ----------- ----------- 1,816,134 1,693,443 ----------- ----------- $ 1,859,598 $ 1,727,226 =========== ===========
The financial information included as of June 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. 3 359 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 471,330 $ 447,770 $ 979,098 $ 864,836 Interest 2,904 2,956 6,256 5,424 -------- -------- -------- -------- 474,234 450,726 985,354 870,260 -------- -------- -------- -------- Costs and expenses: Oil and gas production 239,495 226,945 471,641 443,276 General and administrative 14,392 14,886 33,115 27,789 Depletion 22,631 18,632 43,180 40,238 -------- -------- -------- -------- 276,518 260,463 547,936 511,303 -------- -------- -------- -------- Net income $ 197,716 $ 190,263 $ 437,418 $ 358,957 ======== ======== ======== ======== Allocation of net income: General partners $ 52,896 $ 50,724 $ 116,436 $ 96,236 ======== ======== ======== ======== Limited partners $ 144,820 $ 139,539 $ 320,982 $ 262,721 ======== ======== ======== ======== Net income per limited partnership interest $ 7.43 $ 7.15 $ 16.46 $ 13.47 ======== ======== ======== ========
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. 4 360 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
General Limited partners partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 200,131 $1,493,312 $1,693,443 Distributions (79,839) (234,888) (314,727) Net income 116,436 320,982 437,418 --------- --------- --------- Balance at June 30, 2001 $ 236,728 $1,579,406 $1,816,134 ========= ========= =========
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. 5 361 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 437,418 $ 358,957 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 43,180 40,238 Changes in assets and liabilities: Accounts receivable 49,728 (33,517) Accounts payable 9,681 16,525 --------- --------- Net cash provided by operating activities 540,007 382,203 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (1,751) (7,921) Cash flows used in financing activities: Cash distributions to partners (314,727) (373,589) --------- --------- Net increase in cash 223,529 693 Cash at beginning of period 169,055 143,823 --------- --------- Cash at end of period $ 392,584 $ 144,516 ========= =========
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. 6 362 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 83-A, Ltd. (the "Partnership") is a limited partnership organized in 1983 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 June 30, 2001 and for the three and six months ended June 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. However, these interim results are not necessarily indicative of results for a full year. Certain reclassifications may have been made to the June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 13% to $979,098 for the six months ended June 30, 2001 as compared to $864,836 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 20,863 barrels 7 363 of oil, 8,678 barrels of natural gas liquids ("NGLs") and 52,495 mcf of gas were sold, or 38,290 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 21,455 barrels of oil, 11,696 barrels of NGLs and 46,838 mcf of gas were sold, or 40,957 BOEs. The average price received per barrel of oil increased slightly from $27.55 for the six months ended June 30, 2000 to $27.56 for the same period in 2001. The average price received per barrel of NGLs increased $2.36, or 17%, from $14.30 during the six months ended June 30, 2000 to $16.66 for the same period in 2001. The average price received per mcf of gas increased 118% from $2.27 during the six months ended June 30, 2000 to $4.95 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $547,936 for the six months ended June 30, 2001 as compared to $511,303 for the same period in 2000, an increase of $36,633, or 7%. This increase was due to higher production costs, general and administrative expenses ("G&A") and depletion. Production costs were $471,641 for the six months ended June 30, 2001 and $443,276 for the same period in 2000 resulting in a $28,365 increase, or 6%. The increase was the primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices, offset by a decline in workover expenses. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 19% from $27,789 for the six months ended June 30, 2000 to $33,115 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $43,180 for the six months ended June 30, 2001 as compared to $40,238 for the same period in 2000, an increase of $2,942, or 7%. This increase was primarily due to a decline in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decrease in oil production of 592 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 5% to $471,330 for the three months ended June 30, 2001 as compared to $447,770 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices received for oil. For the three months ended June 30, 2001, 10,695 barrels of oil, 5,002 barrels of NGLs and 26,788 mcf of gas were sold, or 20,162 BOEs. For the three 8 364 months ended June 30, 2000, 10,617 barrels of oil, 6,110 barrels of NGLs and 23,850 mcf of gas were sold, or 20,702 BOEs. The average price received per barrel of oil decreased $.58, or 2%, from $27.66 for the three months ended June 30, 2000 to $27.08 for the same period in 2001. The average price received per barrel of NGLs increased $.48, or 3%, from $14.40 during the three months ended June 30, 2000 to $14.88 for the same period in 2001. The average price received per mcf of gas increased 44% to $4.00 for the three months ended June 30, 2001 from $2.77 for the same period in 2000. Costs and Expenses: Total costs and expenses increased to $276,518 for the three months ended June 30, 2001 as compared to $260,463 for the same period in 2000, an increase of $16,055, or 6%. This increase was due to higher production costs and depletion, offset by a decline in G&A. Production costs were $239,495 for the three months ended June 30, 2001 and $226,945 for the same period in 2000 resulting in a $12,550 increase, or 6%. This increase was primarily due to additional well maintenance expense incurred to stimulate well production, offset by a decline in workover expenses. During this period, G&A decreased 3% from $14,886 for the three months ended June 30, 2000 to $14,392 for the same period in 2001, primarily due to lower audit and tax expenses. Depletion was $22,631 for the three months ended June 30, 2001 as compared to $18,632 for the same period in 2000, an increase of $3,999, or 21%. This increase was primarily due to a decline in proved reserves during the period ended June 30, 2001 due to lower commodity prices and an increase in oil production of 78 barrels for the six months ended June 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 $157,804 during the six months ended June 30, 2001 from the same period in 2000. This increase was due to an increase of $115,094 in oil and gas sales receipts and a reduction of $76,401 in working capital, offset by increases in production costs of $28,365 and G&A expenses of $5,326. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $152,860 to oil and gas receipts, offset by $37,766 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices, offset by a decline in workover expenses. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. 9 365 Net Cash Used in Investing Activities The Partnership's investment activities during the six months ended June 30, 2001 and 2000 were related to expenditures for equipment upgrades on active oil and gas properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $314,727, of which $79,839 was distributed to the general partners and $234,888 to the limited partners. For the six months ended June 30, 2000, cash distributions to the partners were $373,589, of which $90,377 was distributed to the general partners and $283,212 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 366 --------------- (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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 367 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) SIGNATURES 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 83-A, LTD. By: Pioneer Natural Resources USA, Inc. Managing General Partner Dated: August 8, 2001 By: /s/ Rich Dealy ------------------------------------ Rich Dealy, Vice President and Chief Accounting Officer 12 368 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 2-81398A PARKER & PARSLEY 83-A, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-1891384 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ----------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $18,829,000. As of March 8, 2001, the number of outstanding limited partnership interests was 19,505. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 369 PART I ITEM 1. BUSINESS Parker & Parsley 83-A, Ltd. (the "Partnership") is a limited partnership organized in 1983 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA") and its co-general partner is P&P Employees 83-A, Ltd. ("EMPL"), a Texas limited partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 19,505 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 53% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that 2 370 its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 69 oil and gas wells. Two wells were dry holes from previous periods, 22 wells have been sold and three wells have been plugged and abandoned due to unprofitable operations. At December 31, 2000, 42 wells were producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 371 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 19,505 outstanding limited partnership interests held of record by 1,273 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $659,311 and $181,573, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ Operating results: ------------------ Oil and gas sales $ 1,929,701 $ 1,176,562 $ 910,252 $ 1,402,306 $ 1,768,325 ============ ============ ============ ============ ============ Impairment of oil and gas properties $ -- $ -- $ 430,351 $ 1,194,023 $ -- ============ ============ ============ ============ ============ Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ 852,211 ============ ============ ============ ============ ============ Net income (loss) $ 929,165 $ 229,546 $ (784,583) $ (811,642) $ 1,483,261 ============ ============ ============ ============ ============ Allocation of net income (loss): General partners $ 246,105 $ 82,467 $ (52,520) $ (1,662) $ 389,185 ============ ============ ============ ============ ============ Limited partners $ 683,060 $ 147,079 $ (732,063) $ (809,980) $ 1,094,076 ============ ============ ============ ============ ============ Limited partners' net income (loss) per limited partnership interest $ 35.02 $ 7.54 $ (37.53) $ (41.53) $ 56.09 ============ ============ ============ ============ ============ Limited partners' cash distributions per limited partnership interest $ 33.80 $ 9.31 $ 20.73 $ 24.50 $ 72.73(a) ============ ============ ============ ============ ============ At year end: ------------ Identifiable assets $ 1,727,226 $ 1,684,906 $ 1,691,709 $ 3,015,116 $ 4,459,272 ============ ============ ============ ============ ============
--------------- (a) Including litigation settlement per limited partnership interest of $34.33 in 1996. 4 372 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 64% to $1,929,701 for 2000 as compared to $1,176,562 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 43,334 barrels of oil, 23,345 barrels of natural gas liquids ("NGLs") and 94,612 mcf of gas were sold, or 82,448 barrel of oil equivalents ("BOEs"). In 1999, 43,654 barrels of oil, 25,584 barrels of NGLs and 109,716 mcf of gas were sold, or 87,524 BOEs. 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 increased $12.58, or 74%, from $16.96 in 1999 to $29.54 in 2000. The average price received per barrel of NGLs increased $6.16, or 65%, from $9.42 in 1999 to $15.58 in 2000. The average price received per mcf of gas increased 70% from $1.78 in 1999 to $3.02 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $1,801 recognized during 1999 was related to equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $1,014,313 as compared to $955,718 in 1999, an increase of $58,595, or 6%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $867,551 in 2000 and $756,020 in 1999, resulting in a $111,531 increase, or 15%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional workover and well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees, computer services, postage and managing general partner personnel costs. During this period, G&A increased 39% from $47,303 in 1999 to $65,724 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $57,891 in 2000 and $35,297 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 373 Depletion was $81,038 in 2000 as compared to $152,395 in 1999. This represented a decrease of $71,357, or 47%. The decrease was primarily due to a 129,265 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 29% to $1,176,562 from $910,252 in 1998. The increase in revenues resulted from higher average prices received and an increase in production from 1998 to 1999. In 1999, 43,654 barrels of oil, 25,584 barrels of NGLs and 109,716 mcf of gas were sold, or 87,524 BOEs. In 1998, 46,586 barrels of oil, 21,026 barrels of NGLs and 95,156 mcf of gas were sold, or 83,471 BOEs. The average price received per barrel of oil increased $3.62, or 27%, from $13.34 in 1998 to $16.96 in 1999. The average price received per barrel of NGLs increased $2.93, or 45%, from $6.49 in 1998 to $9.42 in 1999. The average price received per mcf of gas increased 11% from $1.60 in 1998 to $1.78 in 1999. A gain on disposition of assets of $1,801 recognized during 1999 was related to equipment credits received on one fully depleted well while the $3,702 gain recognized during 1998 was from final closing adjustments from the sale during 1997 of 16 oil and gas wells. Total costs and expenses decreased in 1999 to $955,718 as compared to $1,715,723 in 1998, a decrease of $760,005, or 44%. The decrease was primarily due to declines in the impairment of oil and gas properties and depletion, offset by increases in production costs and G&A expenses. Production costs were $756,020 in 1999 and $731,005 in 1998, resulting in a $25,015 increase, or 3%. The increase was attributable to additional well maintenance costs incurred to stimulate well production and production taxes due to increased oil and gas revenues, offset by a decline in ad valorem taxes. During this period, G&A increased 43% from $33,000 in 1998 to $47,303 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $35,297 in 1999 and $27,308 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $430,351 related to its oil and gas properties during 1998. Depletion was $152,395 in 1999 compared to $521,367 in 1998. This represented a decrease of $368,972, or 71%. The decrease was the result of an increase in proved reserves of 416,430 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. 6 374 Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $620,642 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $760,015, offset by increases in production costs paid of $111,531, G&A expenses paid of $18,421 and working capital of $9,421. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $849,987 to oil and gas receipts, offset by $89,973 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional workover and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities during 2000 and 1999 included expenditures related to equipment upgrades on various oil and gas properties. Proceeds from asset dispositions in 1999 of $2,611 were from equipment credits received on active wells. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $887,776, of which $228,465 was distributed to the general partners and $659,311 to the limited partners. In 1999, cash distributions to the partners were $245,794, of which $64,221 was distributed to the general partners and $181,573 to the limited partners. 7 375 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 83-A, Ltd: Independent Auditors' Report................................................................ 9 Balance Sheets as of December 31, 2000 and 1999............................................. 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998....................................................................... 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998.......................................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998....................................................................... 13 Notes to Financial Statements............................................................... 14
8 376 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 83-A, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 83-A, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 83-A, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 377 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------------ ------------ ASSETS ------ Current assets: Cash $ 169,055 $ 143,823 Accounts receivable - oil and gas sales 279,239 189,995 ------------ ------------ Total current assets 448,294 333,818 ------------ ------------ Oil and gas properties - at cost, based on the successful efforts accounting method 16,901,194 16,892,307 Accumulated depletion (15,622,262) (15,541,219) ------------ ------------ Net oil and gas properties 1,278,932 1,351,088 ------------ ------------ $ 1,727,226 $ 1,684,906 ============ ============ LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 33,783 $ 32,852 Partners' capital: General partners 200,131 182,491 Limited partners (19,505 interests) 1,493,312 1,469,563 ------------ ------------ 1,693,443 1,652,054 ------------ ------------ $ 1,727,226 $ 1,684,906 ============ ============
The accompanying notes are an integral part of these financial statements. 10 378 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 1,929,701 $ 1,176,562 $ 910,252 Interest 13,777 6,901 17,186 Gain on disposition of assets - 1,801 3,702 ----------- ----------- ----------- 1,943,478 1,185,264 931,140 ----------- ----------- ----------- Costs and expenses: Oil and gas production 867,551 756,020 731,005 General and administrative 65,724 47,303 33,000 Impairment of oil and gas properties - - 430,351 Depletion 81,038 152,395 521,367 ----------- ----------- ----------- 1,014,313 955,718 1,715,723 ----------- ----------- ----------- Net income (loss) $ 929,165 $ 229,546 $ (784,583) =========== =========== =========== Allocation of net income (loss): General partners $ 246,105 $ 82,467 $ (52,520) =========== =========== =========== Limited partners $ 683,060 $ 147,079 $ (732,063) =========== =========== =========== Net income (loss) per limited partnership interest $ 35.02 $ 7.54 $ (37.53) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 11 379 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
General Limited partners partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 336,024 $ 2,640,444 $ 2,976,468 Distributions (119,259) (404,324) (523,583) Net loss (52,520) (732,063) (784,583) ----------- ----------- ----------- Partners' capital at December 31, 1998 164,245 1,504,057 1,668,302 Distributions (64,221) (181,573) (245,794) Net income 82,467 147,079 229,546 ----------- ----------- ----------- Partners' capital at December 31, 1999 182,491 1,469,563 1,652,054 Distributions (228,465) (659,311) (887,776) Net income 246,105 683,060 929,165 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 200,131 $ 1,493,312 $ 1,693,443 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 380 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 929,165 $ 229,546 $(784,583) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 430,351 Depletion 81,038 152,395 521,367 Gain on disposition of assets - (1,801) (3,702) Changes in assets and liabilities: Accounts receivable (89,244) (88,337) 39,919 Accounts payable 931 9,445 (15,241) --------- --------- --------- Net cash provided by operating activities 921,890 301,248 188,111 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (8,882) (8,942) (14,943) Proceeds from asset dispositions - 2,611 271,839 --------- --------- --------- Net cash provided by (used in) investing activities (8,882) (6,331) 256,896 --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (887,776) (245,794) (523,583) --------- --------- --------- Net increase (decrease) in cash 25,232 49,123 (78,576) Cash at beginning of year 143,823 94,700 173,276 --------- --------- --------- Cash at end of year $ 169,055 $ 143,823 $ 94,700 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 13 381 PARKER & PARSLEY 83-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 83-A, Ltd. (the "Partnership") is a limited partnership organized in 1983 under the laws of the State of Texas. The Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P Employees 83-A, Ltd. ("EMPL"). The Partnership's managing general partner is Pioneer USA. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 14 382 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of 15 383 $430,351 related to its proved oil and gas properties during 1998. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $1,081,971 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 929,165 $ 229,546 $(784,583) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 72,648 144,177 510,610 Impairment of oil and gas properties for financial reporting purposes - - 430,351 Other, net (2,243) (235) 891 --------- --------- --------- Net income per Federal income tax returns $ 999,570 $ 373,488 $ 157,269 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ------- ------- ------- Development costs $ 8,882 $ 8,942 $14,943 ======= ======= =======
Capitalized oil and gas properties consist of the following:
2000 1999 ------------ ------------ Proved properties: Property acquisition costs $ 1,000,072 $ 1,000,072 Completed wells and equipment 15,901,122 15,892,235 ------------ ------------ 16,901,194 16,892,307 Accumulated depletion (15,622,262) (15,541,219) ------------ ------------ Net oil and gas properties $ 1,278,932 $ 1,351,088 ============ ============
16 384 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 407,783 $ 397,884 $ 370,984 Reimbursement of general and administrative expenses $ 57,891 $ 35,297 $ 27,308
Pioneer USA, EMPL and the Partnership are parties to the partnership agreement. EMPL is a limited partnership in which Pioneer USA owns 79% and the remaining portion is owned by former affiliates. In addition, Pioneer USA owned 676 limited partner interests at January 1, 2001. The costs and revenues of the Partnership are allocated as follows:
General Limited partners partners -------- -------- Revenues: Proceeds from property dispositions prior to cost recovery 10% 90% All other Partnership revenues 25% 75% Costs and expenses: Lease acquisition costs, drilling and completion costs 10% 90% Operating costs, direct costs and general and administrative expenses 25% 75% Incremental direct expenses - 100%
Incremental direct expenses are direct expenses which would not be incurred except for the requirements of the securities regulatory authorities. Such expenses totaled $7,833, $12,006 and $5,692 in 2000, 1999 and 1998, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 765,491 1,179,867 Revisions (361,806) (528,746) Production (67,612) (95,156) ---------- ---------- Net proved reserves at December 31, 1998 336,073 555,965 Revisions 714,690 1,245,944 Production (69,238) (109,716) ---------- ---------- Net proved reserves at December 31, 1999 981,525 1,692,193 Revisions 124,418 (56,128) Production (66,679) (94,612) ---------- ---------- Net proved reserves at December 31, 2000 1,039,264 1,541,453 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.61 per barrel 17 385 of oil, $13.13 per barrel of NGLs and $7.87 per mcf of gas, discounted at 10% was approximately $7,532,000 and undiscounted was $14,892,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------------- 2000 1999 1998 --------- --------- --------- (in thousands) Oil and gas producing activities: Future cash inflows $ 34,721 $ 24,100 $ 3,651 Future production costs (19,829) (14,511) (2,932) --------- --------- --------- 14,892 9,589 719 10% annual discount factor (7,360) (4,422) (207) --------- --------- --------- Standardized measure of discounted future net cash flows $ 7,532 $ 5,167 $ 512 ========= ========= =========
18 386
For the years ended December 31, ----------------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,062) $ (421) $ (179) Net changes in prices and production costs 2,717 1,751 (1,843) Revisions of previous quantity estimates 713 4,985 (450) Accretion of discount 517 51 285 Changes in production rates, timing and other (520) (1,711) (151) -------- -------- -------- Change in present value of future net revenues 2,365 4,655 (2,338) -------- -------- -------- Balance, beginning of year 5,167 512 2,850 -------- -------- -------- Balance, end of year $ 7,532 $ 5,167 $ 512 ======== ======== ========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 ------ ------ ------ Plains Marketing, L.P. 53% 52% - Genesis Crude Oil, L.P. - - 64% Western Gas Resources, Inc. 3% 5% 17%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $100,032 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: General partners - The general partners of the Partnership are Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $19,505,000. The general partners are required to contribute amounts equal to 10% of Partnership expenditures for lease acquisition, drilling and 19 387 completion and 25% of direct, general and administrative and operating expenses. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 388 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts 21 389 Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 390 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. Under the partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition, drilling and completion costs and 20% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 20% of the Partnership's revenues. EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and 5% of its operating and general and administrative expenses. In return, EMPL is allocated 5% of the Partnership's revenues. EMPL does not receive any fees or reimbursements from the Partnership. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA and EMPL respectively own 80% and 20% of the general partners' interests in the Partnership. Pioneer USA owned 676 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 391 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $407,783 $397,884 $370,984 Reimbursement of general and administrative expenses $ 57,891 $ 35,297 $ 27,308
Under the limited partnership agreement, the general partners, Pioneer USA and EMPL, together pay 10% of the Partnership's acquisition, drilling and completion costs and 25% of its operating and general and administrative expenses. In return, they are allocated 25% of the Partnership's revenues. Twenty percent of the general partners' share of costs and revenues is allocated to EMPL and the remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Partnership. 24 392 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 393 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 83-A, LTD. Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ---------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 23, 2001 -------------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001 -------------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001 -------------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 23, 2001 -------------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 23, 2001 -------------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 23, 2001 -------------------------------------- Officer of Pioneer USA Rich Dealy
26 394 PARKER & PARSLEY 83-A, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3.1 Agreement of Limited Partnership of - Parker & Parsley 83-A, Ltd. incorporated by reference to Exhibit 4(e) of Partnership's Registration Statement on Form S-1 (Registration No. 2-81398A), as amended on April 26, 1983, the effective date thereof (hereinafter called, the Partnership's Registration Statement) 3.2 Amended and Restated Certificate of - Limited Partnership of Parker & Parsley 83-A, Ltd. incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the period from July 1, 1983 (date of organization) through December 31, 1983 4.1 Form of Subscription Agreement and - Power of Attorney incorporated by reference to Exhibit 4(b) of the Partnership's Registration Statement 4.2 Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4(d) of the Partnership's Registration Statement
27 395 PARKER & PARSLEY 83-A, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ------------------------ -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 979,098 $ 864,836 $1,929,701 $1,176,562 $ 910,252 $1,402,306 $1,768,325 =========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 430,351 $1,194,023 $ -- =========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 852,211 =========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 437,418 $ 358,957 $ 929,165 $ 229,546 $ (784,583) $ (811,642) $1,483,261 =========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): General partners $ 116,436 $ 96,236 $ 246,105 $ 82,467 $ (52,520) $ (1,662) $ 389,185 =========== ========== ========== ========== ========== ========== ========== Limited partners $ 320,982 $ 262,721 $ 683,060 $ 147,079 $ (732,063) $ (809,980) $1,094,076 =========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 16.46 $ 13.47 $ 35.02 $ 7.54 $ (37.53) $ (41.53) $ 56.09 =========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 12.04 $ 14.52 $ 33.80 $ 9.31 $ 20.73 $ 24.50 $ 72.73(a) =========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 1,859,598 $1,686,799 $1,727,226 $1,684,906 $1,691,709 $3,015,116 $4,459,272 =========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $34.33 in 1996. 396 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 83-B, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 83-B, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 83-B, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 397 PARKER & PARSLEY 83-B, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 23,370 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 35,807 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 3,565 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 159.87 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.70 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 85.77 -- as of December 31, 2000 (c) $ 83.30 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 147.79 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 155.25 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 225 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent the estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership shall continue until terminated in accordance with the applicable provisions of its partnership agreement. -2- 398 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, 2001 Commission File No. 2-81398B PARKER & PARSLEY 83-B, LTD. (Exact name of Registrant as specified in its charter) Texas 75-1907245 -------------------------------------------- --------------------- (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 / / 399 PARKER & PARSLEY 83-B, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000...................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000..................... 4 Statement of Partners' Capital for the six months ended June 30, 2001..................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000............................ 6 Notes to Financial Statements............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K.......................... 11 Signatures................................................ 12
2 400 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 491,644 $ 224,865 Accounts receivable - oil and gas sales 246,453 369,349 ----------- ----------- Total current assets 738,097 594,214 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 18,964,252 18,957,070 Accumulated depletion (17,300,181) (17,248,214) ----------- ----------- Net oil and gas properties 1,664,071 1,708,856 ----------- ----------- $ 2,402,168 $ 2,303,070 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 56,318 $ 39,862 Partners' capital: General partners 341,357 316,574 Limited partners (23,370 interests) 2,004,493 1,946,634 ----------- ----------- 2,345,850 2,263,208 ----------- ----------- $ 2,402,168 $ 2,303,070 =========== ===========
The financial information included as of June 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. 3 401 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ------------------------ 2001 2000 2001 2000 --------- --------- ---------- ---------- Revenues: Oil and gas $ 519,120 $ 545,418 $1,086,570 $1,095,887 Interest 3,685 5,180 7,940 9,089 Gain on disposition of assets 10,923 1,428 10,923 5,351 -------- -------- --------- --------- 533,728 552,026 1,105,433 1,110,327 -------- -------- --------- --------- Costs and expenses: Oil and gas production 306,551 247,177 584,983 480,127 General and administrative 15,891 17,899 36,427 34,788 Depletion 27,493 22,471 51,967 52,331 -------- -------- --------- --------- 349,935 287,547 673,377 567,246 -------- -------- --------- --------- Net income $ 183,793 $ 264,479 $ 432,056 $ 543,081 ======== ======== ========= ========= Allocation of net income: General partners $ 48,513 $ 69,659 $ 114,788 $ 143,294 ======== ======== ========= ========= Limited partners $ 135,280 $ 194,820 $ 317,268 $ 399,787 ======== ======== ========= ========= Net income per limited partnership interest $ 5.79 $ 8.34 $ 13.58 $ 17.11 ======== ======== ========= =========
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. 4 402 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
General Limited partners partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 316,574 $1,946,634 $2,263,208 Distributions (90,005) (259,409) (349,414) Net income 114,788 317,268 432,056 --------- --------- --------- Balance at June 30, 2001 $ 341,357 $2,004,493 $2,345,850 ========= ========= =========
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. 5 403 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 432,056 $ 543,081 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 51,967 52,331 Gain on disposition of assets (10,923) (5,351) Changes in assets and liabilities: Accounts receivable 122,896 (21,372) Accounts payable 16,456 21,923 --------- --------- Net cash provided by operating activities 612,452 590,612 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (7,182) (5,122) Proceeds from asset disposition 10,923 5,358 --------- --------- Net cash provided by investing activities 3,741 236 --------- --------- Cash flows used in financing activities: Cash distributions to partners (349,414) (574,504) --------- --------- Net increase in cash 266,779 16,344 Cash at beginning of period 224,865 244,091 --------- --------- Cash at end of period $ 491,644 $ 260,435 ========= =========
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. 6 404 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of organization Parker & Parsley 83-B, Ltd. (the "Partnership") is a limited partnership organized in 1983 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 1% to $1,086,570 for the six months ended June 30, 2001 as compared to $1,095,887 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the six months ended June 30, 2001, 23,078 barrels of oil, 7 405 10,759 barrels of natural gas liquids ("NGLs") and 56,204 mcf of gas were sold, or 43,204 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 25,927 barrels of oil, 16,013 barrels of NGLs and 70,252 mcf of gas were sold, or 53,649 BOEs. The average price received per barrel of oil decreased $.15, or 1%, from $27.78 for the six months ended June 30, 2000 to $27.63 for the same period in 2001. The average price received per barrel of NGLs increased $2.54, or 18%, from $14.10 during the six months ended June 30, 2000 to $16.64 for the same period in 2001. The average price received per mcf of gas increased 125% from $2.13 during the six months ended June 30, 2000 to $4.80 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 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 six months ended June 30, 2001. A gain on disposition of assets of $10,923 was recognized during the six months ended June 30, 2001 from salvage income received on a well that was plugged and abandoned in the prior year. A gain of $5,351 was recognized during the same period ended June 30, 2000 from equipment credits received on a fully depleted well. Costs and Expenses: Total costs and expenses increased to $673,377 for the six months ended June 30, 2001 as compared to $567,246 for the same period in 2000, an increase of $106,131, or 19%. This increase resulted from higher production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $584,983 for the six months ended June 30, 2001 and $480,127 for the same period in 2000 resulting in a $104,856 increase, or 22%. The increase was primarily due to additional workover and well maintenance costs incurred to stimulate production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 5% from $34,788 for the six months ended June 30, 2000 to $36,427 for the same period in 2001, primarily due to increased audit and tax fees. Depletion was $51,967 for the six months ended June 30, 2001 as compared to $52,331 for the same period in 2000, a decrease of $364, or 1%. This decrease was primarily due to a reduction in the Partnership's net depletable basis from charges taken 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") during the fourth quarter of 2000 and a decline in oil production of 2,849 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 8 406 that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 407 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) SIGNATURES 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 83-B, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 408 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $519,120 for the three months ended June 30, 2001 as compared to $545,418 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 12,473 barrels of oil, 5,587 barrels of NGLs and 26,602 mcf of gas were sold, or 22,494 BOEs. For the three months ended June 30, 2000, 12,194 barrels of oil, 7,964 barrels of NGLs and 34,873 mcf of gas were sold, or 25,970 BOEs. The average price received per barrel of oil decreased $.92, or 3%, from $27.91 for the three months ended June 30, 2000 to $26.99 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased slightly from $14.72 during the three months ended June 30, 2000 to $14.76 for the same period in 2001. The average price received per mcf of gas increased 49% from $2.52 during the three months ended June 30, 2000 to $3.76 for the same period in 2001. A gain on disposition of assets of $10,923 was recognized during the three months ended June 30, 2001 from salvage income received on a well that was plugged and abandoned in the prior year. A gain of $1,428 was recognized during the same period ended June 30, 2000 from equipment credits received on a fully depleted well. Costs and Expenses: Total costs and expenses increased to $349,935 for the three months ended June 30, 2001 as compared to $287,547 for the same period in 2000, an increase of $62,388, or 22%. This increase was due to higher production costs and depletion, offset by a decline in G&A. Production costs were $306,551 for the three months ended June 30, 2001 and $247,177 for the same period in 2000 resulting in a $59,374 increase, or 24%. This increase was primarily due to additional workover and well maintenance costs incurred to stimulate production. During this period, G&A decreased 11% from $17,899 for the three months ended June 30, 2000 to $15,891 for the same period in 2001, primarily due to decreased audit and tax fees. Depletion was $27,493 for the three months ended June 30, 2001 as compared to $22,471 for the same period in 2000, an increase of $5,022, or 22%. This increase was primarily due to a reduction in proved reserves for the period ended June 30, 2000 due to lower commodity prices and an increase in oil production of 279 barrels for the three months ended June 30, 2001 compared to the same period in 2000. 9 409 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $21,840 during the six months ended June 30, 2001 from the same period in 2000. This increase was due to a reduction of $138,801 in working capital, offset by increases in production costs of $104,856 and G&A expenses of $1,639 and a decline of $10,466 in oil and gas sales receipts. The decrease in oil and gas receipts resulted from a decline of $233,580 in production during 2001 as compared to the same period in 2000 and a decline in oil prices of $3,664, offset by an increase in gas and NGL prices of $226,778 during 2001. The increase in production costs was primarily due to additional workover and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to increased audit and tax fees. Net Cash Provided by Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 were for expenditures related to oil and gas equipment upgrades on active properties. Proceeds from asset disposition of $10,923 and $5,358 were received during the six months ended June 30, 2001 and 2000, respectively. The proceeds received during the period in 2001 were due to salvage income received on a well plugged and abandoned in the prior year. The proceeds received during the period in 2000 were for equipment credits on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $349,414, of which $90,005 was distributed to the general partners and $259,409 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $574,504, of which $144,738 was distributed to the general partners and $429,766 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships 10 410 that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 411 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) SIGNATURES 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 83-B, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 412 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 2-81398B PARKER & PARSLEY 83-B, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-1907245 --------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ----------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $22,493,000. As of March 8, 2001, the number of outstanding limited partnership interests was 23,370. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 413 PART I ITEM 1. BUSINESS Parker & Parsley 83-B, Ltd. (the "Partnership") is a limited partnership organized in 1983 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA") and its co-general partner is P&P Employees 83-B, Ltd. ("EMPL"), a Texas limited partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 23,370 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 46%, 13% and 10% were attributable to sales made to Plains Marketing, L.P., TEPPCO Crude Oil LLC and Phillips Petroleum Company, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that 2 414 its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 59 productive oil and gas wells. At December 31, 2000, the Partnership had 41 producing wells. Thirteen wells have been plugged and abandoned due to unprofitable operations and five wells were sold. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 415 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 23,370 outstanding limited partnership interests held of record by 1,379 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $942,688 and $325,903, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ------------ ------------ ------------ ------------ ------------ Operating results: ------------------ Oil and gas sales $ 2,376,791 $ 1,548,013 $ 1,267,241 $ 1,924,748 $ 2,291,605 ============ ============ ============ ============ ============ Gain on litigation settlement, net $ - $ - $ - $ - $ 1,392,304 ============ ============ ============ ============ ============ Impairment of oil and gas properties $ 84,697 $ 152,505 $ 362,325 $ 1,171,409 $ - ============ ============ ============ ============ ============ Net income (loss) $ 1,174,971 $ 292,874 $ (871,809) $ (754,107) $ 2,309,638 ============ ============ ============ ============ ============ Allocation of net income (loss): General partners $ 325,015 $ 125,187 $ (46,980) $ 56,351 $ 578,911 ============ ============ ============ ============ ============ Limited partners $ 849,956 $ 167,687 $ (824,829) $ (810,458) $ 1,730,727 ============ ============ ============ ============ ============ Limited partners' net income (loss) per limited partnership interest $ 36.37 $ 7.18 $ (35.29) $ (34.68) $ 74.06 ============ ============ ============ ============ ============ Limited partners' cash distributions per limited partnership interest $ 40.34 $ 13.95 $ 11.49 $ 32.48 $ 80.43(a) ============ ============ ============ ============ ============ At year end: ------------ Identifiable assets $ 2,303,070 $ 2,391,541 $ 2,529,136 $ 3,774,504 $ 5,537,639 ============ ============ ============ ============ ============
--------------- (a) Including litigation settlement per limited partnership interest of $46.83 in 1996. 4 416 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 54% to $2,376,791 for 2000 as compared to $1,548,013 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 51,895 barrels of oil, 29,919 barrels of natural gas liquids ("NGLs") and 132,106 mcf of gas were sold, or 103,832 barrel of oil equivalents ("BOEs"). In 1999, 54,446 barrels of oil, 35,000 barrels of NGLs and 157,842 mcf of gas were sold, or 115,753 BOEs. 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 increased $12.51, or 73%, from $17.18 in 1999 to $29.69 in 2000. The average price received per barrel of NGLs increased $5.47, or 55%, from $10.00 in 1999 to $15.47 in 2000. The average price received per mcf of gas increased 70% from $1.66 in 1999 to $2.83 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $7,482 during 2000 was due to salvage income received on one well plugged and abandoned during the current year. A gain of $3,375 during 1999 was recognized from equipment credits received on one fully depleted well. Total costs and expenses decreased in 2000 to $1,230,645 as compared to $1,270,634 in 1999, a decrease of $39,989, or 3%. The decrease was primarily due to declines in depletion and the impairment of oil and gas properties, offset by increases in production costs and general and administrative expenses ("G&A"). Production costs were $947,439 in 2000 and $879,335 in 1999, resulting in a $68,104 increase, or 8%. The increase was primarily due to higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees, and managing general partner personnel and operating costs. During this period, G&A increased 35% from $58,993 in 1999 to $79,646 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $71,304 in 2000 and $46,440 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized non-cash charges of $84,697 and $152,505 related to its oil and gas properties during 2000 and 1999, respectively. 5 417 Depletion was $106,841 in 2000 as compared to $179,801 in 1999, representing a decrease of $72,960, or 41%. This decrease was primarily due to a 115,324 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999. Abandoned property costs of $12,022 during 2000 was related to the plugging and abandonment of one well during the current year. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 22% to $1,548,013 from $1,267,241 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 54,446 barrels of oil, 35,000 barrels of NGLs and 157,842 mcf of gas were sold, or 115,753 BOEs. In 1998, 62,162 barrels of oil, 31,533 barrels of NGLs and 147,495 mcf of gas were sold, or 118,278 BOEs. The average price received per barrel of oil increased $3.88, or 29%, from $13.30 in 1998 to $17.18 in 1999. The average price received per barrel of NGLs increased $3.21, or 47%, from $6.79 in 1998 to $10.00 in 1999. The average price received per mcf of gas increased 8% from $1.54 in 1998 to $1.66 in 1999. A gain on disposition of assets of $3,375 during 1999 was recognized from equipment credits received on one fully depleted well. During 1998, a gain on disposition of assets of $157 was recognized from post closing adjustments received from the sale of two oil and gas wells and an overriding royalty interest on one well during 1997. Total costs and expenses decreased in 1999 to $1,270,634 as compared to $2,152,425 in 1998, a decrease of $881,791, or 41%. The decrease was primarily due to declines in depletion, the impairment of oil and gas properties and production costs, offset by an increase in G&A. Production costs were $879,335 in 1999 and $978,080 in 1998, resulting in a $98,745 decrease, or 10%. The decrease was due to declines in well maintenance costs and ad valorem taxes, offset by an increase in production taxes due to an increase in oil and gas revenues. During this period, G&A increased 36% from $43,488 in 1998 to $58,993 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $46,440 in 1999 and $38,017 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $152,505 and $362,325 related to its oil and gas properties during 1999 and 1998, respectively. Depletion was $179,801 in 1999 compared to $768,532 in 1998. This represented a decrease of $588,731, or 77%. This decrease was the result of a combination of factors that included an increase in proved reserves of 430,250 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with 6 418 SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 7,716 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $733,136 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $838,001, offset by increases in production costs paid of $68,104, G&A expenses paid of $20,653, $12,022 in abandoned property costs paid and working capital of $4,086. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $1,065,062 to oil and gas receipts, offset by $227,061 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 were for expenditures related to oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $7,482 recognized during 2000 were related to salvage income received on one well plugged and abandoned during the current year. Proceeds of $3,845 recognized during 1999 were primarily from equipment credits received on one fully depleted well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $1,260,369, of which $317,681 was distributed to the general partners and $942,688 to the limited partners. In 1999, cash distributions to the partners were $438,977, of which $113,074 was distributed to the general partners and $325,903 to the limited partners. 7 419 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 83-B, Ltd: Independent Auditors' Report................................................................... 10 Balance Sheets as of December 31, 2000 and 1999................................................ 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998.......................................................................... 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998............................................................. 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.......................................................................... 14 Notes to Financial Statements.................................................................. 15
8 420 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 83-B, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 83-B, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 83-B, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 421 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------------ ------------ ASSETS ------ Current assets: Cash $ 224,865 $ 244,091 Accounts receivable - oil and gas sales 369,349 263,774 ------------ ------------ Total current assets 594,214 507,865 ------------ ------------ Oil and gas properties - at cost, based on the successful efforts accounting method 18,957,070 19,500,569 Accumulated depletion (17,248,214) (17,616,893) ------------ ------------ Net oil and gas properties 1,708,856 1,883,676 ------------ ------------ $ 2,303,070 $ 2,391,541 ============ ============ LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 39,862 $ 42,935 Partners' capital: General partners 316,574 309,240 Limited partners (23,370 interests) 1,946,634 2,039,366 ------------ ------------ 2,263,208 2,348,606 ------------ ------------ $ 2,303,070 $ 2,391,541 ============ ============
The accompanying notes are an integral part of these financial statements. 10 422 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 2,376,791 $ 1,548,013 $ 1,267,241 Interest 21,343 12,120 13,218 Gain on disposition of assets 7,482 3,375 157 ----------- ----------- ----------- 2,405,616 1,563,508 1,280,616 ----------- ----------- ----------- Costs and expenses: Oil and gas production 947,439 879,335 978,080 General and administrative 79,646 58,993 43,488 Impairment of oil and gas properties 84,697 152,505 362,325 Depletion 106,841 179,801 768,532 Abandoned property 12,022 - - ----------- ----------- ----------- 1,230,645 1,270,634 2,152,425 ----------- ----------- ----------- Net income (loss) $ 1,174,971 $ 292,874 $ (871,809) =========== =========== =========== Allocation of net income (loss): General partners $ 325,015 $ 125,187 $ (46,980) =========== =========== =========== Limited partners $ 849,956 $ 167,687 $ (824,829) =========== =========== =========== Net income (loss) per limited partnership interest $ 36.37 $ 7.18 $ (35.29) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 11 423 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
General Limited partners partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 435,525 $ 3,290,919 $ 3,726,444 Distributions (91,418) (268,508) (359,926) Net loss (46,980) (824,829) (871,809) ----------- ----------- ----------- Partners' capital at December 31, 1998 297,127 2,197,582 2,494,709 Distributions (113,074) (325,903) (438,977) Net income 125,187 167,687 292,874 ----------- ----------- ----------- Partners' capital at December 31, 1999 309,240 2,039,366 2,348,606 Distributions (317,681) (942,688) (1,260,369) Net income 325,015 849,956 1,174,971 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 316,574 $ 1,946,634 $ 2,263,208 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 424 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) $ 1,174,971 $ 292,874 $ (871,809) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 84,697 152,505 362,325 Depletion 106,841 179,801 768,532 Gain on disposition of assets (7,482) (3,375) (157) Changes in assets and liabilities: Accounts receivable (105,575) (113,070) 72,320 Accounts payable (3,073) 8,508 (13,633) ----------- ----------- ----------- Net cash provided by operating activities 1,250,379 517,243 317,578 ----------- ----------- ----------- Cash flows from investing activities: Additions to oil and gas properties (16,718) (11,719) (27,705) Proceeds from disposition of assets 7,482 3,845 10,974 ----------- ----------- ----------- Net cash used in investing activities (9,236) (7,874) (16,731) ----------- ----------- ----------- Cash flows used in financing activities: Cash distributions to partners (1,260,369) (438,977) (359,926) ----------- ----------- ----------- Net increase (decrease) in cash (19,226) 70,392 (59,079) Cash at beginning of year 244,091 173,699 232,778 ----------- ----------- ----------- Cash at end of year $ 224,865 $ 244,091 $ 173,699 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 13 425 PARKER & PARSLEY 83-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 83-B, Ltd. (the "Partnership") is a limited partnership organized in 1983 under the laws of the State of Texas. The Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P Employees 83-B, Ltd. ("EMPL"). The Partnership's managing general partner is Pioneer USA. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited 14 426 partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non- partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $84,697, $152,505 and $362,325 related to its proved oil and gas properties during 2000, 1999 and 1998, 15 427 respectively. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $1,137,401 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ----------- ----------- ----------- Net income (loss) per statements of operations $ 1,174,971 $ 292,874 $ (871,809) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 90,760 163,887 749,857 Impairment of oil and gas properties for financial reporting purposes 84,697 152,505 362,325 Salvage income - - 422 Other, net (7,657) (1,145) 7,474 ----------- ----------- ----------- Net income per Federal income tax returns $ 1,342,771 $ 608,121 $ 248,269 =========== =========== ===========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ---------- ---------- ---------- Development costs $ 16,718 $ 11,719 $ 27,705 ========== ========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999 ------------ ------------ Proved properties: Property acquisition costs $ 911,105 $ 946,730 Completed wells and equipment 18,045,965 18,553,839 ------------ ------------ 18,957,070 19,500,569 Accumulated depletion (17,248,214) (17,616,893) ------------ ------------ Net oil and gas properties $ 1,708,856 $ 1,883,676 ============ ============
16 428 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 426,573 $ 424,831 $ 426,899 Reimbursement of general and administrative expenses $ 71,304 $ 46,440 $ 38,017
Pioneer USA, EMPL and the Partnership are parties to the partnership agreement. EMPL is a limited partnership in which Pioneer USA owns 79% and the remaining portion is owned by former affiliates. In addition, Pioneer USA owned 877 limited partner interests at January 1, 2001. The costs and revenues of the Partnership are allocated as follows:
General Limited partners partners -------- -------- Revenues: Proceeds from property dispositions prior to cost recovery 10% 90% All other Partnership revenues 25% 75% Costs and expenses: Lease acquisition costs, drilling and completion costs 10% 90% Operating costs, direct costs and general and administrative expenses 25% 75% Incremental direct expenses - 100%
Incremental direct expenses are direct expenses which would not be incurred except for the requirements of the securities regulatory authorities and totaled $8,342, $12,553 and $5,471 in 2000, 1999 and 1998, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 429
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 1,215,076 1,717,779 Revisions (498,218) (464,099) Production (93,695) (147,495) ---------- ---------- Net proved reserves at December 31, 1998 623,163 1,106,185 Revisions 738,384 1,321,692 Production (89,446) (157,842) ---------- ---------- Net proved reserves at December 31, 1999 1,272,101 2,270,035 Revisions 82,614 (66,662) Production (81,814) (132,106) ---------- ---------- Net proved reserves at December 31, 2000 1,272,901 2,071,267 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.32 per barrel of NGLs and $7.73 per mcf of gas, discounted at 10% was approximately $9,555,000 and undiscounted was $18,817,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 18 430
For the years ended December 31, ------------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 43,776 $ 31,312 $ 6,816 Future production costs (24,959) (18,234) (5,169) -------- -------- -------- 18,817 13,078 1,647 10% annual discount factor (9,262) (6,181) (544) -------- -------- -------- Standardized measure of discounted future net cash flows $ 9,555 $ 6,897 $ 1,103 ======== ======== ========
For the years ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $(1,429) $ (669) $ (289) Net changes in prices and production costs 3,342 3,109 (3,208) Revisions of previous quantity estimates 439 5,091 (627) Accretion of discount 690 110 489 Changes in production rates, timing and other (384) (1,847) (147) ------- ------- ------- Change in present value of future net revenues 2,658 5,794 (3,782) ------- ------- ------- Balance, beginning of year 6,897 1,103 4,885 ------- ------- ------- Balance, end of year $ 9,555 $ 6,897 $ 1,103 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 ------ ------ ------ Plains Marketing, L.P. 46% 42% - TEPPCO Crude Oil LLC 13% 14% - Phillips Petroleum Company 10% 3% 3% Genesis Crude Oil, L.P. - - 60% Western Gas Resources, Inc. 4% 8% 29%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., TEPPCO Crude Oil LLC Inc. and Phillips Petroleum Company were $112,877, $29,666 and $22,742, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. 19 431 NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: General partners - The general partners of the Partnership are Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $23,370,000. The general partners are required to contribute amounts equal to 10% of Partnership expenditures for lease acquisition, drilling and completion and 25% of direct, general and administrative and operating expenses. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 432 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 45 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 433 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 434 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. Under the partnership agreement, Pioneer USA pays 8% of the Program's acquisition, drilling and completion costs and 20% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 20% of the Program's revenues. EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL pays 2% of the Program's acquisition, drilling and completion costs and 5% of its operating and general and administrative expenses. In return, EMPL is allocated 5% of the Program's revenues. EMPL does not receive any fees or reimbursements from the Partnership. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA and EMPL respectively own 80% and 20% of the general partners' interests in the Partnership. Pioneer USA owned 877 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 435 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 426,573 $ 424,831 $ 426,899 Reimbursement of general and administrative expenses $ 71,304 $ 46,440 $ 38,017
Under the limited partnership agreement, the general partners, Pioneer USA and EMPL, together pay 10% of the Partnership's acquisition, drilling and completion costs and 25% of its operating and general and administrative expenses. In return, they are allocated 25% of the Partnership's revenues. Twenty percent of the general partners' share of costs and revenues is allocated to EMPL and the remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Partnership. 24 436 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 437 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 83-B, LTD. Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ---------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 29, 2001 -------------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001 -------------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001 -------------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 29, 2001 -------------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 29, 2001 -------------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 29, 2001 -------------------------------------- Officer of Pioneer USA Rich Dealy
26 438 PARKER & PARSLEY 83-B, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3.1 Agreement of Limited Partnership of Parker - & Parsley 83-B, Ltd. incorporated by reference to Exhibit 4(e) of Partnership's Registration Statement on Form S-1 (Registration No. 2-81398B), as amended on April 26, 1983, the effective date thereof (hereinafter called, the Partnership's Registration Statement) 3.2 Amended and Restated Certificate of Limited - Partnership of Parker & Parsley 83-B, Ltd. incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the period from July 1, 1983 (date of organization) through December 31, 1983 4.1 Form of Subscription Agreement and Power of - Attorney incorporated by reference to Exhibit 4(b) of the Partnership's Registration Statement 4.2 Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4(d) of the Partnership's Registration Statement
27 439 PARKER & PARSLEY 83-B, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $1,086,570 $1,095,887 $2,376,791 $1,548,013 $1,267,241 $1,924,748 $2,291,605 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $1,392,304 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 84,697 $ 152,505 $ 362,325 $1,171,409 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 432,056 $ 543,081 $1,174,971 $ 292,874 $ (871,809) $ (754,107) $2,309,638 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): General partners $ 114,788 $ 143,294 $ 325,015 $ 125,187 $ (46,980) $ 56,351 $ 578,911 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 317,268 $ 399,787 $ 849,956 $ 167,687 $ (824,829) $ (810,458) $1,730,727 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 13.58 $ 17.11 $ 36.37 $ 7.18 $ (35.29) $ (34.68) $ 74.06 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 11.10 $ 18.39 $ 40.34 $ 13.95 $ 11.49 $ 32.48 $ 80.43(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $2,402,168 $2,382,041 $2,303,070 $2,391,541 $2,529,136 $3,774,504 $5,537,639 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $46.83 in 1996. 440 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 84-A, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 84-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 84-A, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 441 PARKER & PARSLEY 84-A LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 19,435 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 28,598 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 3,742 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 199.06 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.68 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 111.99 -- as of December 31, 2000 (c) $ 106.99 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 184.53 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 193.24 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 270 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2) (A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent the estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership shall continue until terminated in accordance with the applicable provisions of its partnership agreement. -2- 442 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, 2001 Commission File No. 2-90417 PARKER & PARSLEY 84-A, LTD. (Exact name of Registrant as specified in its charter) Texas 75-1974814 -------------------------------------------- --------------------- (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 / / 443 PARKER & PARSLEY 84-A, LTD. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000........................... 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12
2 444 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 497,847 $ 179,539 Accounts receivable - oil and gas sales 247,028 360,844 ----------- ----------- Total current assets 744,875 540,383 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 18,264,695 18,260,776 Accumulated depletion (16,449,041) (16,391,831) ----------- ----------- Net oil and gas properties 1,815,654 1,868,945 ----------- ----------- $ 2,560,529 $ 2,409,328 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 47,293 $ 36,496 Partners' capital: General partners 336,712 293,504 Limited partners (19,435 interests) 2,176,524 2,079,328 ----------- ----------- 2,513,236 2,372,832 ----------- ----------- $ 2,560,529 $ 2,409,328 =========== ===========
The financial information included as of June 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. 3 445 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues: Oil and gas $ 476,179 $ 549,309 $1,110,822 $1,082,369 Interest 3,705 4,294 7,360 6,992 --------- --------- --------- --------- 479,884 553,603 1,118,182 1,089,361 --------- --------- --------- --------- Costs and expenses: Oil and gas production 261,190 245,145 509,980 464,779 General and administrative 14,541 19,804 36,760 34,139 Depletion 29,102 25,167 57,210 58,813 --------- --------- --------- --------- 304,833 290,116 603,950 557,731 --------- --------- --------- --------- Net income $ 175,051 $ 263,487 $ 514,232 $ 531,630 ========= ========= ========= ========= Allocation of net income: General partners $ 48,192 $ 69,972 $ 137,658 $ 142,146 ========= ========= ========= ========= Limited partners $ 126,859 $ 193,515 $ 376,574 $ 389,484 ========= ========= ========= ========= Net income per limited partnership interest $ 6.53 $ 9.96 $ 19.38 $ 20.04 ========= ========= ========= =========
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. 4 446 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
General Limited partners partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 293,504 $2,079,328 $2,372,832 Distributions (94,450) (279,378) (373,828) Net income 137,658 376,574 514,232 --------- --------- --------- Balance at June 30, 2001 $ 336,712 $2,176,524 $2,513,236 ========= ========= =========
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. 5 447 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 514,232 $ 531,630 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 57,210 58,813 Changes in assets and liabilities: Accounts receivable 113,816 (33,685) Accounts payable 10,797 22,835 --------- --------- Net cash provided by operating activities 696,055 579,593 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (3,919) (11,126) Cash flows used in financing activities: Cash distributions to partners (373,828) (507,986) --------- --------- Net increase in cash 318,308 60,481 Cash at beginning of period 179,539 117,140 --------- --------- Cash at end of period $ 497,847 $ 177,621 ========= =========
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. 6 448 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 84-A, Ltd. (the "Partnership") is a limited partnership organized in 1984 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 3% to $1,110,822 for the six months ended June 30, 2001 as compared to $1,082,369 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices 7 449 received for oil. For the six months ended June 30, 2001, 26,035 barrels of oil, 12,266 barrels of natural gas liquids ("NGLs") and 57,564 mcf of gas were sold, or 47,895 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 26,759 barrels of oil, 16,307 barrels of NGLs and 68,163 mcf of gas were sold, or 54,427 BOEs. The average price received per barrel of oil decreased $.61, or 2%, from $27.63 for the six months ended June 30, 2000 to $27.02 for the same period in 2001. The average price received per barrel of NGLs increased $.95, or 7%, from $13.27 during the six months ended June 30, 2000 to $14.22 for the same period in 2001. The average price received per mcf of gas increased 117% from $1.86 during the six months ended June 30, 2000 to $4.04 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $603,950 for the six months ended June 30, 2001 as compared to $557,731 for the same period in 2000, an increase of $46,219, or 8%. This increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $509,980 for the six months ended June 30, 2001 and $464,779 for the same period in 2000 resulting in a $45,201 increase, or 10%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 8% from $34,139 for the six months ended June 30, 2000 to $36,760 for the same period in 2001, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $57,210 for the six months ended June 30, 2001 as compared to $58,813 for the same period in 2000, a decrease of $1,603, or 3%. This decrease was the result of a decline in oil production of 724 barrels for the six months ended June 30, 2001 compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 13% to $476,179 for the three months ended June 30, 2001 as compared to $549,309 for the same period in 2000. The decrease in revenues resulted from a decrease in production and lower average prices received for oil and NGLs, offset by higher average prices received for gas. For the three months ended June 30, 2001, 12,406 barrels of oil, 5,875 barrels of NGLs and 24,014 mcf of gas were sold, or 22,283 BOEs. For 8 450 the three months ended June 30, 2000, 13,188 barrels of oil, 8,087 barrels of NGLs and 33,092 mcf of gas were sold, or 26,790 BOEs. The average price received per barrel of oil decreased $.78, or 3%, from $27.65 for the three months ended June 30, 2000 to $26.87 for the three months ended June 30, 2001. The average price received per barrel of NGLs decreased $1.77, or 13%, from $13.84 during the three months ended June 30, 2000 to $12.07 for the same period in 2001. The average price received per mcf of gas increased 36% to $2.99 for the three months ended June 30, 2001 from $2.20 for the same period in 2000. Costs and Expenses: Total costs and expenses increased to $304,833 for the three months ended June 30, 2001 as compared to $290,116 for the same period in 2000, an increase of $14,717, or 5%. This increase was primarily due to increases in production costs and depletion, offset by a decline in G&A. Production costs were $261,190 for the three months ended June 30, 2001 and $245,145 for the same period in 2000 resulting in an increase of $16,045, or 7%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A decreased 27% from $19,804 for the three months ended June 30, 2000 to $14,541 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 a decrease in audit and tax fees. Depletion was $29,102 for the three months ended June 30, 2001 as compared to $25,167 for the same period in 2000, an increase of $3,935, or 16%. This increase was the result of a reduction in revisions to proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decline in oil production of 782 barrels for the three months ended June 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 $116,462 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase of $28,821 in oil and gas sales receipts and a reduction in working capital of $135,463, offset by increases in production costs of $45,201 and G&A expenses of $2,621. The increase in oil and gas receipts resulted from the increase in gas and NGL prices of $164,517 during 2001, offset by $119,533 resulting from the decline in production and a $16,163 decline resulting from lower oil prices during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. 9 451 Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were for expenditures related to oil and gas equipment upgrades on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $373,828, of which $94,450 was distributed to the general partners and $279,378 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $507,986, of which $129,953 was distributed to the general partners and $378,033 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 452 ---------- (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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 453 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) SIGNATURES 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 84-A, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 6, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 454 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 2-90417 PARKER & PARSLEY 84-A, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-1974814 ------------------------------------------ --------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 \ \ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. \ X \ No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-s of the Registrant is $19,016,000. As of March 8, 2001, the number of outstanding limited partnership interests was 19,435. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 2 455 PART I ITEM 1. BUSINESS Parker & Parsley 84-A, Ltd. (the "Partnership") is a limited partnership organized in 1984 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA") and its co-general partner is P&P Employees 84-A, Ltd. ("EMPL"), a Texas limited partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 19,435 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers. Of the Partnership's total oil and gas revenues for 2000, approximately 35%, 17% and 10% were attributable to sales made to Plains Marketing, L.P., TEPPCO Crude Oil LLC and NGTS LLC, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 456 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental and exploratory oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 42 oil and gas wells. At December 31, 2000, 38 wells were producing and four wells had been plugged and abandoned due to unprofitable operations. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 457 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 19,435 outstanding limited partnership interests held of record by 1,268 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $872,006 and $293,145, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- Operating results: ----------------- Oil and gas sales $2,348,261 $1,419,376 $1,124,134 $1,668,018 $1,984,346 ========= ========= ========= ========= ========= Impairment of oil and gas properties $ - $ - $ 425,668 $ 370,361 $ - ========= ========= ========= ========= ========= Gain on litigation settlement, net $ - $ - $ - $ - $1,055,353 ========= ========= ========= ========= ========= Net income (loss) $1,240,674 $ 340,062 $ (923,346) $ 70,124 $1,782,138 ========= ========= ========= ========= ========= Allocation of net income (loss): General partners $ 328,079 $ 113,550 $ (56,570) $ 121,907 $ 462,041 ========= ========= ========= ========= ========= Limited partners $ 912,595 $ 226,512 $ (866,776) $ (51,783) $1,320,097 ========= ========= ========= ========= ========= Limited partners' net income (loss) per limited partnership interest $ 46.96 $ 11.65 $ (44.60) $ (2.66) $ 67.92 ========= ========= ========= ========= ========= Limited partners' cash distributions per limited partnership interest $ 44.87 $ 15.08 $ 12.82 $ 32.32 $ 73.68 (a) ========= ========== ========= ========= ======== At year end: ----------- Identifiable assets $2,409,328 $2,343,035 $2,390,810 $3,657,643 $4,436,385 ========= ========= ========= ========= =========
--------------- (a) Including litigation settlement per limited partnership interest of $42.48 in 1996. 4 458 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 65% to $2,348,261 for 2000 as compared to $1,419,376 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 51,863 barrels of oil, 33,622 barrels of natural gas liquids ("NGLs") and 138,617 mcf of gas were sold, or 108,588 barrel of oil equivalents ("BOEs"). In 1999, 50,064 barrels of oil, 35,804 barrels of NGLs and 154,235 mcf of gas were sold, or 111,574 BOEs. 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 increased $12.19, or 70%, from $17.36 in 1999 to $29.55 in 2000. The average price received per barrel of NGLs increased $4.97, or 55%, from $9.03 in 1999 to $14.00 in 2000. The average price received per mcf of gas increased 69% from $1.47 in 1999 to $2.49 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility in the foreseeable future. The Partnership may therefore sell its future oil and gas production at average prices lower or higher than that received in 2000. Total costs and expenses increased in 2000 to $1,124,923 as compared to $1,088,550 in 1999, an increase of $36,373, or 3%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $937,743 in 2000 and $859,602 in 1999, resulting in an increase of $78,141 or 9%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and workover costs incurred to stimulate well production, offset by lower well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 45% from $53,481 in 1999 to $77,459 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $70,448 in 2000 and $42,581 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 459 Depletion was $109,721 in 2000 as compared to $175,467 in 1999, representing a decrease of $65,746, or 37%. This decrease was primarily due to a 150,475 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 26% to $1,419,376 from $1,124,134 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 50,064 barrels of oil, 35,804 barrels of NGLs and 154,235 mcf of gas were sold, or 111,574 BOEs. In 1998, 54,153 barrels of oil, 34,549 barrels of NGLs and 145,870 mcf of gas were sold, or 113,014 BOEs. The average price received per barrel of oil increased $4.06, or 31%, from $13.30 in 1998 to $17.36 in 1999. The average price received per barrel of NGLs increased $2.95, or 49%, from $6.08 in 1998 to $9.03 in 1999. The average price received per mcf of gas increased 11% from $1.33 in 1998 to $1.47 in 1999. A gain on disposition of assets of $2,100 was recognized during 1998 from the sale of equipment on one fully depleted well. Total costs and expenses decreased in 1999 to $1,088,550 as compared to $2,059,738 in 1998, a decrease of $971,188, or 47%. The decrease was primarily due to declines in depletion, the impairment of oil and gas properties and production costs, offset by an increase in G&A expenses. Production costs were $859,602 in 1999 and $865,247 in 1998, resulting in a $5,645 decrease. The decrease was due to declines in workover costs and ad valorem taxes, offset by increases in well maintenance costs incurred to stimulate well production and in production taxes due to increased oil and gas revenues. During this period, G&A increased 39% from $38,385 in 1998 to $53,481 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $42,581 in 1999 and $33,724 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $425,668 related to its oil and gas properties during 1998. Depletion was $175,467 in 1999 compared to $730,438 in 1998. This represented a decrease of $554,971, or 76%. This decrease was the result of an increase in proved reserves of 445,239 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. 6 460 Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $852,554 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $936,985 and a decline in working capital of $17,688, offset by increases in production costs paid of $78,141 and G&A expenses paid of $23,978. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $953,265 to oil and gas receipts, offset by $16,280 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and workover costs incurred to stimulate well production, offset by lower well maintenance costs. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 were related to expenditures for equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $1,173,468, of which $301,462 was distributed to the general partners and $872,006 to the limited partners. In 1999, cash distributions to the partners were $392,295, of which $99,150 was distributed to the general partners and $293,145 to the limited partners. 7 461 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page Financial Statements of Parker & Parsley 84-A, Ltd: Independent Auditors' Report......................................................... 9 Balance Sheets as of December 31, 2000 and 1999...................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 13 Notes to Financial Statements........................................................ 14
8 462 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 84-A, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 84-A, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 84-A, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 463 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------------- ------------- ASSETS ------ Current assets: Cash $ 179,539 $ 117,140 Accounts receivable - oil and gas sales 360,844 261,763 ------------ ------------ Total current assets 540,383 378,903 ------------ ------------ Oil and gas properties - at cost, based on the successful efforts accounting method 18,260,776 18,246,242 Accumulated depletion (16,391,831) (16,282,110) ------------ ------------ Net oil and gas properties 1,868,945 1,964,132 ------------ ------------ $ 2,409,328 $ 2,343,035 ============ ============ LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - $ 36,496 $ 37,409 Partners' capital: General partners 293,504 266,887 Limited partners (19,435 interests) 2,079,328 2,038,739 ------------ ------------ 2,372,832 2,305,626 ------------ ------------ $ 2,409,328 $ 2,343,035 ============ ============
The accompanying notes are an integral part of these financial statements. 10 464 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 2,348,261 $ 1,419,376 $ 1,124,134 Interest 17,336 9,236 10,158 Gain on disposition of assets -- -- 2,100 ----------- ----------- ----------- 2,365,597 1,428,612 1,136,392 ----------- ----------- ----------- Costs and expenses: Oil and gas production 937,743 859,602 865,247 General and administrative 77,459 53,481 38,385 Impairment of oil and gas properties -- -- 425,668 Depletion 109,721 175,467 730,438 ----------- ----------- ----------- 1,124,923 1,088,550 2,059,738 ----------- ----------- ----------- Net income (loss) $ 1,240,674 $ 340,062 $ (923,346) =========== =========== =========== Allocation of net income (loss): General partners $ 328,079 $ 113,550 $ (56,570) =========== =========== =========== Limited partners $ 912,595 $ 226,512 $ (866,776) =========== =========== =========== Net income (loss) per limited partnership interest $ 46.96 $ 11.65 $ (44.60) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 11 465 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
General Limited partners partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 395,245 $ 3,221,215 $ 3,616,460 Distributions (86,188) (249,067) (335,255) Net loss (56,570) (866,776) (923,346) ----------- ----------- ----------- Partners' capital at December 31, 1998 252,487 2,105,372 2,357,859 Distributions (99,150) (293,145) (392,295) Net income 113,550 226,512 340,062 ----------- ----------- ----------- Partners' capital at December 31, 1999 266,887 2,038,739 2,305,626 Distributions (301,462) (872,006) (1,173,468) Net income 328,079 912,595 1,240,674 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 293,504 $ 2,079,328 $ 2,372,832 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 466 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------------- ----------- ----------- Cash flows from operating activities: Net income (loss) $ 1,240,674 $ 340,062 $ (923,346) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties -- -- 425,668 Depletion 109,721 175,467 730,438 Gain on disposition of assets -- -- (2,100) Changes in assets and liabilities: Accounts receivable (99,081) (122,140) 85,609 Accounts payable (913) 4,458 (8,232) ----------- ----------- ----------- Net cash provided by operating activities 1,250,401 397,847 308,037 ----------- ----------- ----------- Cash flows from investing activities: Additions to oil and gas properties (14,534) (12,628) (10,572) Proceeds from asset dispositions -- 211 2,100 ----------- ----------- ----------- Net cash used in investing activities (14,534) (12,417) (8,472) ----------- ----------- ----------- Cash flows used in financing activities: Cash distributions to partners (1,173,468) (392,295) (335,255) ----------- ----------- ----------- Net increase (decrease) in cash 62,399 (6,865) (35,690) Cash at beginning of year 117,140 124,005 159,695 ----------- ----------- ----------- Cash at end of year $ 179,539 $ 117,140 $ 124,005 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 13 467 PARKER & PARSLEY 84-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 84-A, Ltd. (the "Partnership") is a limited partnership organized in 1984 under the laws of the State of Texas. The Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P Employees 84-A, Ltd. ("EMPL"). The Partnership's managing general partner is Pioneer USA. 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements 14 468 as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $425,668 related to its proved oil and gas properties during 1998. 15 469 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $383,897 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ----------- ----------- ----------- Net income (loss) per statements of operations $ 1,240,674 $ 340,062 $ (923,346) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 98,611 165,764 695,743 Impairment of oil and gas properties for financial reporting purposes -- -- 425,668 Salvage income -- -- 2,967 Other, net (2,689) (4,938) 5,121 ----------- ----------- ----------- Net income per Federal income tax returns $ 1,336,596 $ 500,888 $ 206,153 =========== =========== ===========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- ---------- --------- Development costs $ 14,534 $ 12,628 $ 10,572 ========= ========== =========
Capitalized oil and gas properties consist of the following:
2000 1999 ------------ ------------ Proved properties: Property acquisition costs $ 923,276 $ 923,276 Completed wells and equipment 17,337,500 17,322,966 ------------ ------------ 18,260,776 18,246,242 Accumulated depletion (16,391,831) (16,282,110) ------------ ------------ Net oil and gas properties $ 1,868,945 $ 1,964,132 ============ ============
16 470 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- ---------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 410,572 $ 395,016 $ 382,325 Reimbursement of general and administrative expenses $ 70,448 $ 42,581 $ 33,724
Pioneer USA, EMPL and the Partnership are parties to the Partnership agreement. EMPL is a limited partnership in which Pioneer USA owns 77.5% and the remaining portion is owned by former s. In addition, Pioneer USA owned 419 limited partner interests in the Partnership at January 1, 2001. The costs and revenues of the Partnership are allocated as follows:
General Limited partners partners -------- -------- Revenues: Proceeds from property dispositions prior to cost recovery 10% 90% All other Partnership revenues 25% 75% Costs and expenses: Lease acquisition costs, drilling and completion costs 10% 90% Operating costs, direct costs and general and administrative expenses 25% 75% Incremental direct expenses - 100%
Incremental direct expenses are direct expenses which would not be incurred except for the requirements of the securities regulatory authorities and totaled $7,011, $10,900 and $4,661 in 2000, 1999 and 1998, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 471
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 1,053,041 1,516,688 Revisions (400,628) (306,319) Production (88,702) (145,870) ---------- ---------- Net proved reserves at December 31, 1998 563,711 1,064,499 Revisions 789,038 1,498,169 Production (85,868) (154,235) ---------- ---------- Net proved reserves at December 31, 1999 1,266,881 2,408,433 Revisions 168,380 (31,965) Production (85,485) (138,617) ---------- ---------- Net proved reserves at December 31, 2000 1,349,776 2,237,851 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.02 per barrel of NGLs and $7.45 per mcf of gas, discounted at 10% was approximately $10,236,000 and undiscounted was $20,832,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 18 472
For the years ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 45,297 $ 30,875 $ 6,111 Future production costs (24,465) (18,195) (4,514) -------- -------- -------- 20,832 12,680 1,597 10% annual discount factor (10,596) (6,020) (598) -------- -------- -------- Standardized measure of discounted future net cash flows $ 10,236 $ 6,660 $ 999 ======== ======== ========
For the years ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,411) $ (560) $ (259) Net changes in prices and production costs 3,988 2,450 (2,438) Revisions of previous quantity estimates 1,037 4,939 (555) Accretion of discount 666 100 406 Changes in production rates, timing and other (704) (1,268) (211) -------- -------- -------- Change in present value of future net revenues 3,576 5,661 (3,057) -------- -------- -------- Balance, beginning of year 6,660 999 4,056 -------- -------- -------- Balance, end of year $ 10,236 $ 6,660 $ 999 ======== ======== ========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 35% 33% - TEPPCO Crude Oil LLC 17% 18% - Genesis Crude Oil, L.P. - - 53% NGTS LLC 10% 7% - Western Gas Resources, Inc. 3% 7% 29%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., TEPPCO Crude Oil LLC and NGTS LLC were $43,117, $76,863 and $693, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: General partners - The general partners of the Partnership are Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. 19 473 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $19,435,000. The general partners are required to contribute amounts equal to 10% of Partnership expenditures for lease acquisition, drilling and completion and 25% of direct, general and administrative and operating expenses. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 474 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 475 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 476 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. Under the Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition, drilling and completion costs and 20% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 20% of the Partnership's revenues. EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and 5% of its operating and general and administrative expenses. In return, EMPL is allocated 5% of the Partnership's revenues. EMPL does not receive any fees or reimbursements from the Partnership. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA and EMPL respectively own 80% and 20% of the general partners' interests in the Partnership. Pioneer USA owned 419 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 477 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $410,572 $395,016 $382,325 Reimbursement of general and administrative expenses $ 70,448 $ 42,581 $ 33,724
Under the limited partnership agreement, the general partners, Pioneer USA and EMPL, together pay 10% of the Partnership's acquisition, drilling and completion costs and 25% of its operating and general and administrative expenses. In return, they are allocated 25% of the Partnership's revenues. Twenty percent of the general partners' share of costs and revenues is allocated to EMPL and the remainder is allocated to Pioneer USA. Certain former s of Pioneer USA are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Partnership. 24 478 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 479 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 84-A, LTD. Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 23, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 23, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 23, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 23, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
480 PARKER & PARSLEY 84-A, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3.1 Agreement of limited partnership of Parker - & Parsley 84-A, Ltd. incorporated by reference to Exhibit 4(e) of Partnership's Registration Statement on Form S-1 (Registration No. 2-90417), as amended on May 24, 1984, the effective date thereof (hereinafter called, the Partnership's Registration Statement) 3.2 Amended and Restated Certificate of Limited - Partnership of Parker & Parsley 84-A, Ltd. incorporated by reference to Exhibit 3.2 of the Partnership's Annual Report on Form 10-K for the period from July 6, 1984 (date of organization) through December 31, 1984 4.1 Form of Subscription Agreement and Power of - Attorney incorporated by reference to Exhibit 4(b) of the Partnership's Registration Statement 4.2 Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4(d) of the Partnership's Registration Statement
481 PARKER & PARSLEY 84-A, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $1,110,822 $1,082,369 $2,348,261 $1,419,376 $1,124,134 $1,668,018 $1,984,346 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 425,668 $ 370,361 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $1,055,353 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 514,232 $ 531,630 $1,240,674 $ 340,062 $ (923,346) $ 70,124 $1,782,138 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): General partners $ 137,658 $ 142,146 $ 328,079 $ 113,550 $ (56,570) $ 121,907 $ 462,041 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 376,574 $ 389,484 $ 912,595 $ 226,512 $ (866,776) $ (51,783) $1,320,097 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 19.38 $ 20.04 $ 46.96 $ 11.65 $ (44.60) $ (2.66) $ 67.92 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 14.37 $ 19.45 $ 44.87 $ 15.08 $ 12.82 $ 32.32 $ 73.68(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $2,560,529 $2,389,514 $2,409,328 $2,343,035 $2,390,810 $3,657,643 $4,436,385 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $42.48 in 1996. 482 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 85-A, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 85-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 85-A, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 483 PARKER & PARSLEY 85-A LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 9,613 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 7,280 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,300 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 137.90 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.12 times past four quarterly distributions including the distribution in July 2001 (b) (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 75.25 -- as of December 31, 2000 (c) $ 71.31 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 126.02 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 133.90 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 260 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent the estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2035, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 484 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, 2001 Commission File No. 2-99079A PARKER & PARSLEY 85-A, LTD. (Exact name of Registrant as specified in its charter) Texas 75-2064518 -------------------------------------------- --------------------- (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 / / 485 PARKER & PARSLEY 85-A, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000........................................ 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000....................... 4 Statement of Partners' Capital for the six months ended June 30, 2001....................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000....................... 6 Notes to Financial Statements............................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................ 11 Signatures.................................................. 12
2 486 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 163,158 $ 72,868 Accounts receivable - oil and gas sales 72,982 103,810 ---------- ---------- Total current assets 236,140 176,678 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 7,402,301 7,398,954 Accumulated depletion (6,889,539) (6,871,985) ---------- ---------- Net oil and gas properties 512,762 526,969 ---------- ---------- $ 748,902 $ 703,647 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 18,211 $ 11,211 Partners' capital: Managing general partner 7,319 6,936 Limited partners (9,613 interests) 723,372 685,500 ---------- ---------- 730,691 692,436 ---------- ---------- $ 748,902 $ 703,647 ========== ==========
The financial information included as of June 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. 3 487 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 165,950 $ 174,901 $ 382,756 $ 353,329 Interest 1,199 1,518 2,517 2,548 -------- -------- -------- -------- 167,149 176,419 385,273 355,877 -------- -------- -------- -------- Costs and expenses: Oil and gas production 99,647 76,933 184,949 168,879 General and administrative 4,979 5,247 11,483 10,600 Depletion 9,097 7,115 17,554 15,707 -------- -------- -------- -------- 113,723 89,295 213,986 195,186 -------- -------- -------- -------- Net income $ 53,426 $ 87,124 $ 171,287 $ 160,691 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 534 $ 871 $ 1,713 $ 1,607 ======== ======== ======== ======== Limited partners $ 52,892 $ 86,253 $ 169,574 $ 159,084 ======== ======== ======== ======== Net income per limited partnership interest $ 5.50 $ 8.97 $ 17.64 $ 16.55 ======== ======== ======== ========
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. 4 488 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- --------- --------- Balance at January 1, 2001 $ 6,936 $ 685,500 $ 692,436 Distributions (1,330) (131,702) (133,032) Net income 1,713 169,574 171,287 -------- -------- -------- Balance at June 30, 2001 $ 7,319 $ 723,372 $ 730,691 ======== ======== ========
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. 5 489 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 171,287 $ 160,691 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 17,554 15,707 Changes in assets and liabilities: Accounts receivable 30,828 (8,835) Accounts payable 7,000 4,482 --------- --------- Net cash provided by operating activities 226,669 172,045 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (3,347) (3,092) Cash flows used in financing activities: Cash distributions to partners (133,032) (178,266) --------- --------- Net increase (decrease) in cash 90,290 (9,313) Cash at beginning of period 72,868 73,810 --------- --------- Cash at end of period $ 163,158 $ 64,497 ========= =========
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. 6 490 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 85-A, Ltd. (the "Partnership") is a limited partnership organized in 1985 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 8% to $382,756 for the six months ended June 30, 2001 as compared to $353,329 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices received for oil. For the six months ended June 30, 2001, 8,134 barrels of oil, 3,588 7 491 barrels of natural gas liquids ("NGLs") and 21,052 mcf of gas were sold, or 15,231 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 8,535 barrels of oil, 5,502 barrels of NGLs and 21,614 mcf of gas were sold, or 17,639 BOEs. The average price received per barrel of oil decreased $.07 from $27.78 for the six months ended June 30, 2000 to $27.71 for the same period in 2001. The average price received per barrel of NGLs increased $2.89, or 22%, from $13.12 during the six months ended June 30, 2000 to $16.01 for the same period in 2001. The average price received per mcf of gas increased 133% from $2.04 during the six months ended June 30, 2000 to $4.75 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $213,986 for the six months ended June 30, 2001 as compared to $195,186 for the same period in 2000, an increase of $18,800, or 10%. This increase was due to increases in production costs, depletion and general and administrative expenses ("G&A"). Production costs were $184,949 for the six months ended June 30, 2001 and $168,879 for the same period in 2000, an increase of $16,070, or 10%. The increase was primarily due to an increase in workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 8% from $10,600 for the six months ended June 30, 2000 to $11,483 for the same period in 2001 primarily due to an increase in audit and tax fees. Depletion was $17,554 for the six months ended June 30, 2001 as compared to $15,707 for the same period in 2000, an increase of $1,847, or 12%. This increase was primarily due to a reduction in proved reserves for the period ended June 30, 2001 as a result of lower commodity prices. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $165,950 for the three months ended June 30, 2001, as compared to $174,901 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and NGLs and a decline in production, offset by higher average prices received for gas. For the three months ended June 30, 2001, 4,100 barrels of oil, 1,570 barrels of NGLs and 8,687 mcf of gas were sold, or 7,118 BOEs. For the three months ended June 30, 2000, 4,084 barrels of oil, 2,518 barrels of NGLs and 9,802 mcf of gas were sold, or 8,236 BOEs. 8 492 The average price received per barrel of oil decreased $1.03, or 4%, from $28.18 for the three months ended June 30, 2000 to $27.15 for the same period in 2001. The average price received per barrel of NGLs decreased $.40, or 3%, from $14.26 during the three months ended June 30, 2000 to $13.86 for the same period in 2001. The average price received per mcf of gas increased 55% from $2.44 during the three months ended June 30, 2000 to $3.79 for the same period in 2001. Costs and Expenses: Total costs and expenses increased to $113,723 for the three months ended June 30, 2001 as compared to $89,295 for the same period in 2000, an increase of $24,428, or 27%. This increase was due to an increase in production costs and depletion, offset by a decline in G&A. Production costs were $99,647 for the three months ended June 30, 2001 and $76,933 for the same period in 2000, an increase of $22,714, or 30%. The increase was primarily due to higher workover and well maintenance costs incurred to stimulate well production. During this period, G&A decreased 5% from $5,247 for the three months ended June 30, 2000 to $4,979 for the same period in 2001, primarily due to a decline in audit and tax fees. Depletion was $9,097 for the three months ended June 30, 2001 as compared to $7,115 for the same period in 2000, an increase of $1,982, or 28%. This increase was primarily due to a reduction in proved reserves for the period ended June 30, 2001 as a result of lower commodity prices. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $54,624 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was primarily due to an increase in oil and gas sales receipts of $29,396 and a reduction in working capital of $42,181, offset by increases in production costs of $16,070 and G&A expenses of $883. The increase in oil and gas receipts resulted from the increase in gas and NGL prices of $74,394 during 2001, offset by a decline of $44,449 in production and a $549 decline resulting from lower oil prices during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to an increase in workover costs incurred to stimulate well production. The increase in G&A was primarily due to an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $133,032, of which $1,330 was distributed to the managing general partner and 9 493 $131,702 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $178,266, of which $1,783 was distributed to the managing general partner and $176,483 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 494 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 495 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) SIGNATURES 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 85-A, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 6, 2001 By: /s/ Rich Dealy ------------------------------------ Rich Dealy, Vice President and Chief Accounting Officer 12 496 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 2-99079A PARKER & PARSLEY 85-A, LTD. (Exact name of Registrant as specified in its charter)
TEXAS 75-2064518 ------------------------------ ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- --------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $9,426,000. As of March 8, 2001, the number of outstanding limited partnership interests was 9,613. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 497 PART I ITEM 1. BUSINESS Parker & Parsley 85-A, Ltd. (the "Partnership") is a limited partnership organized in 1985 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 9,613 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers. Of the Partnership's total oil and gas revenues for 2000, approximately 57% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any 2 498 applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 25 productive oil and gas wells. At December 31, 2000, 21 wells were producing with four wells sold during 1996. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter 2000. 3 499 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 9,613 outstanding limited partnership interests held of record by 820 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $372,121 and $161,988 respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1 997 1996 ---------- ---------- ---------- ----------- ------------ Operating results: ------------ Oil and gas sales $ 757,929 $ 526,325 $ 371,098 $ 548,786 $ 631,838 ========== ========== ========== =========== ============ Impairment of oil and gas properties $ -- $ -- $ 22,031 $ 270,187 $ -- ========== ========== ========== =========== ============ Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ 32,694 ========== ========== ========== =========== ============ Net income (loss) $ 379,203 $ 178,927 $ (274,769) $ (158,804) $ 221,854 ========== ========== ========== =========== ============ Allocation of net income (loss): Managing general partner $ 3,792 $ 1,789 $ (2,747) $ (1,588) $ 2,219 ========== ========== ========== =========== ============ Limited partners $ 375,411 $ 177,138 $ (272,022) $ (157,216) $ 219,635 ========== ========== ========== =========== ============ Limited partners' net income (loss) per limited partnership interest $ 39.05 $ 18.43 $ (28.30) $ (16.35) $ 22.85 ========== ========== ========== =========== ============ Limited partners' cash distributions per limited partnership interest $ 38.71 $ 16.85 $ 9.62 $ 25.26 $ 26.55 (a) ========== ========== ========== =========== ============ At year end: ------------ Identifiable assets $ 703,647 $ 702,600 $ 684,133 $ 1,059,494 $ 1,460,408 ========== ========== ========== =========== ============ -----------------------
(a) Including litigation settlement per limited partnership interest of $3.37 in 1996. 4 500 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 44% to $757,929 for 2000 as compared to $526,325 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production from 1999 to 2000. In 2000, 16,975 barrels of oil, 10,483 barrels of natural gas liquids ("NGLs") and 41,549 mcf of gas were sold, or 34,383 barrel of oil equivalents ("BOEs"). In 1999, 17,451 barrels of oil, 13,795 barrels of NGLs and 55,226 mcf of gas were sold, or 40,450 BOEs. 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 increased $12.27, or 72%, from $17.11 in 1999 to $29.38 in 2000. The average price received per barrel of NGLs increased $4.49, or 46%, from $9.71 in 1999 to $14.20 in 2000. The average price received per mcf of gas increased 56% from $1.70 in 1999 to $2.66 in 2000. The market price received for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility in the foreseeable future. The Partnership may therefore sell its future oil and gas production at average prices lower or higher than that received in 2000. Total costs and expenses increased in 2000 to $386,863 as compared to $350,830 in 1999, an increase of $36,033, or 10%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $331,978 in 2000 and $284,086 in 1999, resulting in an increase of $47,892, or 17%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 44% from $15,790 in 1999 to $22,738 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $19,018 in 2000 and $9,794 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $32,147 in 2000 as compared to $50,954 in 1999, representing a decrease of $18,807, or 37%. This decrease was primarily due to a 17,541 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 5 501 The Partnership's 1999 oil and gas revenues increased 42% to $526,325 from $371,098 in 1998. The increase in revenues resulted from higher average prices received and an increase in production from 1998 to 1999. In 1999, 17,451 barrels of oil, 13,795 barrels of NGLs and 55,226 mcf of gas were sold, or 40,450 BOEs. In 1998, 18,178 barrels of oil, 9,630 barrels of NGLs and 43,021 mcf of gas were sold, or 34,978 BOEs. The average price received per barrel of oil increased $3.84, or 29%, from $13.27 in 1998 to $17.11 in 1999. The average price received per barrel of NGLs increased $3.20, or 49%, from $6.51 in 1998 to $9.71 in 1999. The average price received per mcf of gas increased 9% from $1.56 in 1998 to $1.70 in 1999. Total costs and expenses decreased in 1999 to $350,830 as compared to $649,476 in 1998, a decrease of $298,646, or 46%. The decrease was primarily due to declines in depletion, the impairment of oil and gas properties and production costs, offset by an increase in G&A. Production costs were $284,086 in 1999 and $304,333 in 1998, resulting in a decrease of $20,247, or 7%. The decrease was the combination of declines in well maintenance costs and ad valorem taxes, offset by an increase in production taxes due to an increase in oil and gas revenues. During this period, G&A increased 42% from $11,133 in 1998 to $15,790 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $9,794 in 1999 and $8,231 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $22,031 related to its oil and gas properties during 1998. Depletion was $50,954 in 1999 compared to $311,979 in 1998. This represented a decrease of $261,025, or 84%. This decrease was primarily due to an increase in proved reserves of 182,664 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas 6 502 prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $172,932 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $234,104, offset by increases in production costs paid of $47,892, G&A expenses paid of $6,948 and working capital of $6,332. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $331,444 to oil and gas receipts, offset by $97,340 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 were related to expenditures for equipment upgrades on various oil and gas properties. Proceeds from asset dispositions of $2,454 and $279 were recognized in 2000 and 1999, respectively. Proceeds during 2000 of $2,205 were from salvage income received on one fully depleted well and $249 from equipment credits received on an active property. Proceeds during 1999 of $279 were from equipment credits received on active properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $375,880, of which $3,759 was distributed to the managing general partner and $372,121 to the limited partners. In 1999, cash distributions to the partners were $163,624, of which $1,636 was distributed to the managing general partner and $161,988 to the limited partners. 7 503 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page Financial Statements of Parker & Parsley 85-A, Ltd: Independent Auditors' Report......................................................... 9 Balance Sheets as of December 31, 2000 and 1999...................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 13 Notes to Financial Statements........................................................ 14
8 504 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 85-A, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 85-A, Ltd. as of December 31, 2000 and 1999, and the related statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 85-A, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 505 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 72,868 $ 73,810 Accounts receivable - oil and gas sales 103,810 72,517 ----------- ----------- Total current assets 176,678 146,327 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 7,398,954 7,396,111 Accumulated depletion (6,871,985) (6,839,838) ----------- ----------- Net oil and gas properties 526,969 556,273 ----------- ----------- $ 703,647 $ 702,600 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 11,211 $ 13,487 Partners' capital: Managing general partner 6,936 6,903 Limited partners (9,613 interests) 685,500 682,210 ----------- ----------- 692,436 689,113 $ 703,647 $ 702,600 =========== ===========
The accompanying notes are an integral part of these financial statements. 10 506 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 757,929 $ 526,325 $ 371,098 Interest 5,932 3,432 3,609 Gain on disposition of assets 2,205 - - ------- ------- ------- 766,066 529,757 374,707 ------- ------- ------- Costs and expenses: Oil and gas production 331,978 284,086 304,333 General and administrative 22,738 15,790 11,133 Impairment of oil and gas properties - - 22,031 Depletion 32,147 50,954 311,979 ------- ------- ------- 386,863 350,830 649,476 ------- ------- ------- Net income (loss) $ 379,203 $ 178,927 $(274,769) ======== ======== ======== Allocation of net income (loss): Managing general partner $ 3,792 $ 1,789 $ (2,747) ======== ======== ======== Limited partners $ 375,411 $ 177,138 $(272,022) ======== ======== ======== Net income (loss) per limited partnership interest $ 39.05 $ 18.43 $ (28.30) ======== ======== ========
The accompanying notes are an integral part of these financial statements. 11 507 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------------- -------------- ------------- Partners' capital at January 1, 1998 $ 10,430 $1,031,517 $1,041,947 Distributions (933) (92,435) (93,368) Net loss (2,747) (272,022) (274,769) ------- -------- -------- Partners' capital at December 31, 1998 6,750 667,060 673,810 Distributions (1,636) (161,988) (163,624) Net income 1,789 177,138 178,927 ------- -------- ------- Partners' capital at December 31, 1999 6,903 682,210 689,113 Distributions (3,759) (372,121) (375,880) Net income 3,792 375,411 379,203 ------- -------- ------- Partners' capital at December 31, 2000 $ 6,936 $ 685,500 $ 692,436 ======== ========= ========
The accompanying notes are an integral part of these financial statements. 12 508 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 379,203 $ 178,927 $(274,769) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties -- -- 22,031 Depletion 32,147 50,954 311,979 Gain on disposition of assets (2,205) -- -- Changes in assets and liabilities: Accounts receivable (31,293) (30,401) 24,699 Accounts payable (2,276) 3,164 (7,224) --------- --------- --------- Net cash provided by operating activities 375,576 202,644 76,716 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (3,092) (6,987) (12,611) Proceeds from asset dispositions 2,454 279 323 --------- --------- --------- Net cash used in investing activities (638) (6,708) (12,288) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (375,880) (163,624) (93,368) --------- --------- --------- Net increase (decrease) in cash (942) 32,312 (28,940) Cash at beginning of year 73,810 41,498 70,438 --------- --------- --------- Cash at end of year $ 72,868 $ 73,810 $ 41,498 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 13 509 PARKER & PARSLEY 85-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 85-A, Ltd. (the "Partnership") is a limited partnership organized in 1985 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 14 510 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated, in part, to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $22,031 related to its proved oil and gas properties during 1998. NOTE 4. INCOME TAXES 15 511 The financial statement basis of the Partnership's net assets and liabilities was $500,887 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 379,203 $ 178,927 $(274,769) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 26,488 45,239 307,564 Impairment of oil and gas properties for financial reporting purposes - - 22,031 Other, net (713) (817) 1,515 ------- ------- ------- Net income per Federal income tax returns $ 404,978 $ 223,349 $ 56,341 ======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- ---------- Development costs $ 3,092 $ 6,987 $ 12,611 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 488,509 $ 488,509 Completed wells and equipment 6,910,445 6,907,602 ----------- ----------- 7,398,954 7,396,111 Accumulated depletion (6,871,985) (6,839,838) ----------- ----------- Net oil and gas properties $ 526,969 $ 556,273 =========== ===========
16 512 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 157,269 $ 148,638 $ 144,020 Reimbursement of general and administrative expenses $ 19,018 $ 9,794 $ 8,231
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. In addition, Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership ---------------- ------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 187 limited partner interests owned by Pioneer USA. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 513
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 318,665 423,423 Revisions (154,837) (135,041) Production (27,808) (43,021) ----------- ---------- Net proved reserves at December 31, 1998 136,020 245,361 Revisions 304,597 520,701 Production (31,246) (55,226) ----------- ---------- Net proved reserves at December 31, 1999 409,371 710,836 Revisions 430 (151,364) Production (27,458) (41,549) ----------- ---------- Net proved reserves at December 31, 2000 382,343 517,923 =========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.51 per barrel of NGLs and $7.67 per mcf of gas, discounted at 10% was approximately $2,812,000 and undiscounted was $5,248,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 18 514
For the years ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 12,368 $ 10,131 $ 1,487 Future production costs (7,120) (6,033) (1,155) -------- -------- -------- 5,248 4,098 332 10% annual discount factor (2,436) (1,879) (102) -------- -------- -------- Standardized measure of discounted future net cash flows $ 2,812 $ 2,219 $ 230 ======== ======== ========
For the years ended December 31, ------------------------------------ 2000 1999 1998 -------- --------- -------- (in, thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (426) $ (242) $ (67) Net changes in prices and production costs 1,007 705 (709) Revisions of previous quantity estimates (150) 2,101 (195) Accretion of discount 222 22 114 Changes in production rates, timing and other (60) (597) (52) -------- --------- -------- Change in present value of future net revenues 593 1,989 (909) -------- --------- -------- Balance, beginning of year 2,219 230 1,139 -------- --------- -------- Balance, end of year $ 2,812 $ 2,219 $ 230 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 57% 49% - NGTS LLC 9% 10% 3% Genesis Crude Oil, L.P. - - 60% Western Gas Resources, Inc. 3% 7% 19%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $36,131, which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and 19 515 general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $9,613,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 516 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts 21 517 Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 518 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated approximately 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 187 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 519 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- ---------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 157,269 $ 148,638 $144,020 Reimbursement of general and administrative expenses $ 19,018 $ 9,794 $ 8,231
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Partnership. 24 520 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 521 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 85-A, LTD. Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield -------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 27, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 27, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 27, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 27, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
26 522 PARKER & PARSLEY 85-A, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ---------- ----------- ---- 3(a) Amended and Restated Certificate of - Limited Partnership of Parker & Parsley 85-A, Ltd. incorporated by reference to Exhibit A of the Partnership's Registration Statement on Form S-1 (Registration No. 2-99079) (hereinafter called the Partnership's Registration Statement) 4(b) Agreement of Limited Partnership of - Parker & Parsley 85-A, Ltd. incorporated by reference to an Exhibit of the Partnership's Registration Statement 4(c) Form of Subscription Agreement and Power - of Attorney incorporated by reference to an Exhibit of the Partnership's Registration Statement 4(d) Specimen Certificate of Limited Partnership - Interest incorporated by reference to an Exhibit of the Partnership's Registration Statement
27 523 PARKER & PARSLEY 85-A, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 382,756 $ 353,329 $ 757,929 $ 526,325 $ 371,098 $ 548,786 $ 631,838 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 22,031 $ 270,187 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 32,694 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 171,287 $ 160,691 $ 379,203 $ 178,927 $ (274,769) $ (158,804) $ 221,854 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,713 $ 1,607 $ 3,792 $ 1,789 $ (2,747) $ (1,588) $ 2,219 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 169,574 $ 159,084 $ 375,411 $ 177,138 $ (272,022) $ (157,216) $ 219,635 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 17.64 $ 16.55 $ 39.05 $ 18.43 $ (28.30) $ (16.35) $ 22.85 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 13.70 $ 18.36 $ 38.71 $ 16.85 $ 9.62 $ 25.26 $ 26.55(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 748,902 $ 689,507 $ 703,647 $ 702,600 $ 684,133 $1,059,494 $1,460,408 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $3.37 in 1996. 524 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 85-B, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 85-B, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 85-B, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 525 PARKER & PARSLEY 85-B LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 7,988 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 7,627 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,155 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 145.71 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.08 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 120.38 -- as of December 31, 2000 (c) $ 117.13 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 134.55 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 141.50 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 210 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2035, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 526 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, 2001 Commission File No. 2 -99079B PARKER & PARSLEY 85-B, LTD. (Exact name of Registrant as specified in its charter) Texas 75-2075492 ------------------------------------------ --------------------- (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 / / 527 PARKER & PARSLEY 85-B, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000........................... 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12
2 528 PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 154,190 $ 80,718 Accounts receivable - oil and gas sales 73,028 84,740 ---------- ---------- Total current assets 227,218 165,458 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,318,689 5,317,256 Accumulated depletion (4,558,726) (4,526,767) ---------- ---------- Net oil and gas properties 759,963 790,489 ---------- ---------- $ 987,181 $ 955,947 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 15,556 $ 10,515 Partners' capital: Managing general partner 10,067 9,805 Limited partners (7,988 interests) 961,558 935,627 ---------- ---------- 971,625 945,432 ---------- ---------- $ 987,181 $ 955,947 ========== ==========
The financial information included as of June 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. 3 529 PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ----------------------- 2001 2000 2001 2000 --------- --------- --------- ---------- Revenues: Oil and gas $ 144,439 $ 140,791 $ 323,533 $ 276,113 Interest 1,125 1,335 2,407 2,322 -------- -------- -------- --------- 145,564 142,126 325,940 278,435 -------- -------- -------- --------- Costs and expenses: Oil and gas production 71,567 79,043 132,743 136,410 General and administrative 4,333 4,223 9,706 8,283 Depletion 17,339 14,055 31,959 27,918 -------- -------- -------- --------- 93,239 97,321 174,408 172,611 -------- -------- -------- --------- Net income $ 52,325 $ 44,805 $ 151,532 $ 105,824 ======== ======== ======== ========= Allocation of net income: Managing general partner $ 523 $ 448 $ 1,515 $ 1,058 ======== ======== ======== ========= Limited partners $ 51,802 $ 44,357 $ 150,017 $ 104,766 ======== ======== ======== ========= Net income per limited partnership interest $ 6.48 $ 5.56 $ 18.78 $ 13.12 ======== ======== ======== =========
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. 4 530 PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 9,805 $ 935,627 $ 945,432 Distributions (1,253) (124,086) (125,339) Net income 1,515 150,017 151,532 -------- --------- --------- Balance at June 30, 2001 $ 10,067 $ 961,558 $ 971,625 ======== ========= =========
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. 5 531 PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited) Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 151,532 $ 105,824 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 31,959 27,918 Changes in assets and liabilities: Accounts receivable 11,712 (9,996) Accounts payable 5,041 5,318 --------- --------- Net cash provided by operating activities 200,244 129,064 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (1,433) (2,708) Proceeds from asset dispositions - 6,412 --------- --------- Net cash provided by (used in) investing activities (1,433) 3,704 --------- --------- Cash flows used in financing activities: Cash distributions to partners (125,339) (137,064) --------- --------- Net increase (decrease) in cash 73,472 (4,296) Cash at beginning of period 80,718 74,959 --------- --------- Cash at end of period $ 154,190 $ 70,663 ========= =========
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. 6 532 PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 85-B, Ltd. (the "Partnership") is a limited partnership organized in 1985 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 June 30, 2001 and for the three and six months ended June 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 of operations are not necessarily indicative of results for a full year. Certain reclassifications may have been made to the June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 17% to $323,533 for the six months ended June 30, 2001 as compared to $276,113 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a slight decline in production and lower average prices 7 533 received for oil. For the six months ended June 30, 2001, 6,896 barrels of oil, 2,960 barrels of natural gas liquids ("NGLs") and 16,032 mcf of gas were sold, or 12,528 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 6,942 barrels of oil, 3,123 barrels of NGLs and 14,832 mcf of gas were sold, or 12,537 BOEs. The average price received per barrel of oil decreased $.63, or 2%, from $28.58 for the six months ended June 30, 2000 to $27.95 for the same period in 2001. The average price received per barrel of NGLs increased $2.56, or 18%, from $14.29 during the six months ended June 30, 2000 to $16.85 for the same period in 2001. The average price received per mcf of gas increased 126% from $2.23 during the six months ended June 30, 2000 to $5.05 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $174,408 for the six months ended June 30, 2001 as compared to $172,611 for the same period in 2000, an increase of $1,797, or 1%. This increase was due to increases in depletion and general and administrative expenses ("G&A"), offset by a decrease in production costs. Production costs were $132,743 for the six months ended June 30, 2001 and $136,410 for the same period in 2000, a decrease of $3,667, or 3%. The decrease was primarily due to lower well maintenance costs, offset by an increase in workover expense incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 17% from $8,283 for the six months ended June 30, 2000 to $9,706 for the same period in 2001, primarily due to an increase in audit and tax fees and a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $31,959 for the six months ended June 30, 2001 as compared to $27,918 for the same period in 2000, an increase of $4,041, or 14%. This increase was primarily due to a reduction in proved reserves due to lower commodity prices during the period ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 3% to $144,439 for the three months ended June 30, 2001 as compared to $140,791 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices received for oil. For the three months ended June 30, 2001, 3,236 barrels of oil, 1,626 barrels of NGLs and 7,667 mcf of gas were sold, or 6,140 BOEs. For the three 8 534 months ended June 30, 2000, 3,454 barrels of oil, 1,618 barrels of NGLs and 7,403 mcf of gas were sold, or 6,306 BOEs. The average price received per barrel of oil decreased $1.58, or 6%, from $28.52 for the three months ended June 30, 2000 to $26.94 for the same period in 2001. The average price received per barrel of NGLs increased $.95, or 7%, from $14.18 during the three months ended June 30, 2000 to $15.13 for the same period in 2001. The average price received per mcf of gas increased 63% from $2.61 during the three months ended June 30, 2000 to $4.26 for the same period in 2001. Costs and Expenses: Total costs and expenses decreased to $93,239 for the three months ended June 30, 2001 as compared to $97,321 for the same period in 2000, a decrease of $4,082, or 4%. This decrease was due to a decrease in production costs, offset by increases in depletion and G&A. Production costs were $71,567 for the three months ended June 30, 2001 and $79,043 for the same period in 2000, a decrease of $7,476, or 9%. The decrease was primarily due to lower well maintenance costs, offset by an increase in workover expenses incurred to stimulate well production. During this period, G&A increased 3% from $4,223 for the three months ended June 30, 2000 to $4,333 for the same period in 2001, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $17,339 for the three months ended June 30, 2001 as compared to $14,055 for the same period in 2000, an increase of $3,284, or 23%. This increase was primarily due to a reduction in proved reserves due to lower commodity prices during the period ended June 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 $71,180 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase of $47,505 in oil and gas sales receipts and reductions in working capital of $21,431 and production costs of $3,667, offset by an increase in G&A expenses of $1,423. The increase in oil and gas receipts resulted from the increase in gas and NGL prices of $49,771 and $6,054 resulting from an increase in gas production during 2001, offset by $4,032 resulting from the decline in oil and NGL production and a $4,288 decline resulting from lower oil prices during 2001 as compared to the same period in 2000. The decrease in production costs was due to lower well maintenance costs, offset by an increase in workover expenses incurred to stimulate well production. The increase in G&A was primarily due to an increase in audit and tax fees and a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. 9 535 Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities for the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on active properties. Proceeds from asset dispositions of $6,412 were received during the six months ended June 30, 2000 from equipment credits received on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $125,339, of which $1,253 was distributed to the managing general partner and $124,086 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $137,064, of which $1,371 was distributed to the managing general partner and $135,693 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when 10 536 filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 537 PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) SIGNATURES 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 85-B, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy ------------------------------------ Rich Dealy, Vice President and Chief Accounting Officer 12 538 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 2-99079B PARKER & PARSLEY 85-B, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-2075492 ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $7,930,000. As of March 8, 2001, the number of outstanding limited partnership interests was 7,988. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 539 PART I ITEM 1. BUSINESS Parker & Parsley 85-B, Ltd. (the "Partnership") is a limited partnership organized in 1985 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 7,988 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers. Of the Partnership's total oil and gas revenues for 2000, approximately 48%, 20% and 10% were attributable to sales made to Mobil Oil Corporation, Plains Marketing, L.P. and NGTS LLC, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 540 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 22 productive oil and gas wells. One well was converted to a saltwater disposal well during 1987 and four wells have been plugged and abandoned. At December 31, 2000, the Partnership had 17 producing wells. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 541 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 7,988 outstanding limited partnership interests held of record by 717 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $309,279 and $115,631, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 --------- -------- --------- -------- --------- Operating results: ----------------- Oil and gas sales $ 619,365 $ 387,551 $ 341,048 $ 538,813 $ 616,863 ========= ======== ========= ======== ========= Impairment of oil and gas properties $ 10,050 $ 95,253 $ 52,922 $ 324,374 $ - ========= ======== ========= ======== ========= Gain on litigation settlement, net $ - $ - $ - $ - $ 62,948 ========= ======== ========= ======== ========= Net income (loss) $ 277,323 $ (14,097) $ (117,257) $(177,091) $ 286,574 ========= ======== ========= ======== ========= Allocation of net income (loss): Managing general partner $ 2,773 $ (141) $ (1,172) $ (1,771) $ 2,866 ========= ======== ========= ======== ========= Limited partners $ 274,550 $ (13,956) $ (116,085) $(175,320) $ 283,708 ========= ======== ========= ======== ========= Limited partners' net income (loss) per limited partnership interest $ 34.37 $ (1.75) $ (14.53) $ (21.95) $ 35.52 ========= ======== ======== ======== ========= Limited partners' cash distributions per limited partnership interest $ 38.72 $ 14.48 $ 17.29 $ 33.72 $ 42.90 (a) ========= ========= ======== ======== ========= At year end: ----------- Identifiable assets $ 955,947 $ 992,521 $1,122,069 $1,386,758 $1,831,497 ========= ======== ========= ========= =========
-------------- (a) Including litigation settlement per limited partnership interest of $7.80 in 1996. 4 542 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 60% to $619,365 for 2000 as compared to $387,551 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 14,002 barrels of oil, 6,807 barrels of natural gas liquids ("NGLs") and 30,909 mcf of gas were sold, or 25,961 barrel of oil equivalents ("BOEs"). In 1999, 14,280 barrels of oil, 7,130 barrels of NGLs and 33,467 mcf of gas were sold, or 26,988 BOEs. 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 increased $11.95, or 66%, from $18.07 in 1999 to $30.02 in 2000. The average price received per barrel of NGLs increased $5.86, or 58%, from $10.10 in 1999 to $15.96 in 2000. The average price received per mcf of gas increased 70% from $1.72 in 1999 to $2.92 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility in the foreseeable future. The Partnership may therefore sell its future oil and gas production at average prices lower or higher than that received in 2000. Total costs and expenses decreased in 2000 to $347,682 as compared to $404,907 in 1999, a decrease of $57,225, or 14%. The decrease was primarily due to declines in the impairment of oil and gas properties and depletion, offset by increases in production costs and general and administrative expenses ("G&A"). Production costs were $264,543 in 2000 and $207,744 in 1999, resulting in an increase of $56,799, or 27%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 60% from $11,626 in 1999 to $18,581 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $15,555 in 2000 and $6,624 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized non-cash charges of $10,050 and $95,253 related to its oil and gas properties during 2000 and 1999, respectively. 5 543 Depletion was $54,508 in 2000 as compared to $90,284 in 1999, representing a decrease of $35,776, or 40%. This decrease was primarily due to a 17,204 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 14% to $387,551 from $341,048 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 14,280 barrels of oil, 7,130 barrels of NGLs and 33,467 mcf of gas were sold, or 26,988 BOEs. In 1998, 16,204 barrels of oil, 8,599 barrels of NGLs and 41,501 mcf of gas were sold, or 31,720 BOEs. The average price received per barrel of oil increased $4.77, or 36%, from $13.30 in 1998 to $18.07 in 1999. The average price received per barrel of NGLs increased $3.15, or 45%, from $6.95 in 1998 to $10.10 in 1999. The average price received per mcf of gas increased 9% from $1.58 in 1998 to $1.72 in 1999. Total costs and expenses decreased in 1999 to $404,907 as compared to $462,704 in 1998, a decrease of $57,797, or 12%. The decrease was primarily due to declines in production costs and depletion, offset by increases in the impairment of oil and gas properties and G&A. Production costs were $207,744 in 1999 and $269,093 in 1998, resulting in a $61,349 decrease, or 23%. The decrease was attributable to less well maintenance costs and ad valorem taxes. During this period, G&A increased, in aggregate, 14% from $10,231 in 1998 to $11,626 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $6,624 in 1999 and $7,884 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $95,253 and $52,922 related to its oil and gas properties during 1999 and 1998, respectively. Depletion was $90,284 in 1999 compared to $130,458 in 1998. This represented a decrease of $40,174, or 31%. This decrease was the result of an increase in proved reserves of 117,564 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 1,924 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but 6 544 to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $163,858 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $234,195, offset by increases in production costs paid of $56,799, G&A expenses paid of $6,955 and working capital of $6,583. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $255,175 to oil and gas receipts, offset by a decrease of $20,980 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 were for expenditures related to oil and gas equipment upgrades on active properties. Proceeds from disposition of assets of $6,412 and $134 during 2000 and 1999, respectively, were from equipment credits received on active wells. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $312,403, of which $3,124 was distributed to the managing general partner and $309,279 to the limited partners. In 1999, cash distributions to the partners were $116,799, of which $1,168 was distributed to the managing general partner and $115,631 to the limited partners. 7 545 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS Page ---- Financial Statements of Parker & Parsley 85-B, Ltd: Independent Auditors' Report......................................................... 9 Balance Sheets as of December 31, 2000 and 1999...................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 13 Notes to Financial Statements........................................................ 14
8 546 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 85-B, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 85-B, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 85-B, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 547 PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS Current assets: Cash $ 80,718 $ 74,959 Accounts receivable - oil and gas sales 84,740 59,750 ----------- ----------- Total current assets 165,458 134,709 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,317,256 5,320,021 Accumulated depletion (4,526,767) (4,462,209) ----------- ----------- Net oil and gas properties 790,489 857,812 ----------- ----------- $ 955,947 $ 992,521 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 10,515 $ 12,009 Partners' capital: Managing general partner 9,805 10,156 Limited partners (7,988 interests) 935,627 970,356 ----------- ----------- 945,432 980,512 ----------- ----------- $ 955,947 $ 992,521 =========== ===========
10 548 The accompanying notes are an integral part of these financial statements. PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31 2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 619,365 $ 387,551 $ 341,048 Interest 5,640 3,259 4,399 --------- --------- --------- 625,005 390,810 345,447 --------- --------- --------- Costs and expenses: Oil and gas production 264,543 207,744 269,093 General and administrative 18,581 11,626 10,231 Impairment of oil and gas properties 10,050 95,253 52,922 Depletion 54,508 90,284 130,458 --------- --------- --------- 347,682 404,907 462,704 --------- --------- --------- Net income (loss) $ 277,323 $ (14,097) $(117,257) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 2,773 $ (141) $ (1,172) ========= ========= ========= Limited partners $ 274,550 $ (13,956) $(116,085) ========= ========= ========= Net income (loss) per limited partnership interest $ 34.37 $ (1.75) $ (14.53) ========= ========= ========= 11 549 The accompanying notes are an integral part of these financial statements. PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------------- -------------- -------------- Partners' capital at January 1, 1998 $ 14,031 $1,354,156 $1,368,187 Distributions (1,394) (138,128) (139,522) Net loss (1,172) (116,085) (117,257) ------- -------- -------- Partners' capital at December 31, 1998 11,465 1,099,943 1,111,408 Distributions (1,168) (115,631) (116,799) Net loss (141) (13,956) (14,097) ------- -------- ------- Partners' capital at December 31, 1999 10,156 970,356 980,512 Distributions (3,124) (309,279) (312,403) Net income 2,773 274,550 277,323 ------- -------- ------- Partners' capital at December 31, 2000 $ 9,805 $ 935,627 $ 945,432 ======== ========= ========
12 550 The accompanying notes are an integral part of these financial statements. PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 277,323 $ (14,097) $(117,257) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 10,050 95,253 52,922 Depletion 54,508 90,284 130,458 Changes in assets and liabilities: Accounts receivable (24,990) (21,249) 46,814 Accounts payable (1,494) 1,348 (7,910) --------- --------- --------- Net cash provided by operating activities 315,397 151,539 105,027 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas equipment (3,647) (7,285) (7,947) Proceeds from disposition of assets 6,412 134 -- --------- --------- --------- Net cash provided by (used in) investing activities 2,765 (7,151) (7,947) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (312,403) (116,799) (139,522) --------- --------- --------- Net increase (decrease) in cash 5,759 27,589 (42,442) Cash at beginning of year 74,959 47,370 89,812 --------- --------- --------- Cash at end of year $ 80,718 $ 74,959 $ 47,370 ========= ========= =========
13 551 The accompanying notes are an integral part of these financial statements. PARKER & PARSLEY 85-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 85-B, Ltd. (the "Partnership") is a limited partnership organized in 1985 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 552 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $10,050, $95,253 and $52,922 related to its proved oil and gas properties during 2000, 1999 and 1998, respectively. 15 553 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $89,078 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 277,323 $ (14,097) $(117,257) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 50,022 86,267 127,807 Impairment of oil and gas properties for financial reporting purposes 10,050 95,253 52,922 Other, net 5,557 (1,887) 2,207 --------- --------- --------- Net income per Federal income tax returns $ 342,952 $ 165,536 $ 65,679 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ------ ------ ------ Development costs $ 3,647 $ 7,285 $ 7,947 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 292,864 $ 292,864 Completed wells and equipment 5,024,392 5,027,157 ----------- ----------- 5,317,256 5,320,021 Accumulated depletion (4,526,767) (4,462,209) ----------- ----------- Net oil and gas properties $ 790,489 $ 857,812 =========== ===========
16 554 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $105,647 $ 97,004 $111,206 Reimbursement of general and administrative expenses $ 15,555 $ 6,624 $ 7,884
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. In addition, Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership ------------- ------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 58 limited partner interests owned by Pioneer USA. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 555
Oil and NGLs Gas (bbls) (mcf) ------------- ------------ Net proved reserves at January 1, 1998 333,208 531,982 Revisions (139,875) (179,491) Production (24,803) (41,501) -------- -------- Net proved reserves at December 31, 1998 168,530 310,990 Revisions 177,510 247,011 Production (21,410) (33,467) -------- -------- Net proved reserves at December 31, 1999 324,630 524,534 Revisions 634 (33,966) Production (20,809) (30,909) -------- -------- Net proved reserves at December 31, 2000 304,455 459,659 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.43 per barrel of NGLs and $7.87 per mcf of gas, discounted at 10% was approximately $2,332,000 and undiscounted was $4,536,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 18 556
For the years ended December 31, ------------------------------------- 2000 1999 1998 ----------- --------- ---------- (in thousands) Oil and gas producing activities: Future cash inflows $ 10,394 $ 8,008 $ 1,850 Future production costs (5,858) (4,882) (1,499) -------- -------- -------- 4,536 3,126 351 10% annual discount factor (2,204) (1,410) (95) -------- -------- -------- Standardized measure of discounted future net cash flows $ 2,332 $ 1,716 $ 256 ======== ======== ========
For the years ended December 31, ------------------------------------------- 2000 1999 1998 -------- --------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (355) $ (180) $ (72) Net changes in prices and production costs 1,003 954 (923) Revisions of previous quantity estimates (33) 1,209 (154) Accretion of discount 172 25 133 Changes in production rates, timing and other (171) (548) (54) -------- --------- -------- Change in present value of future net revenues 616 1,460 (1,070) -------- --------- -------- Balance, beginning of year 1,716 256 1,326 -------- --------- -------- Balance, end of year $ 2,332 $ 1,716 $ 256 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Mobil Oil Corporation 48% 51% 45% Plains Marketing, L.P. 20% 16% - NGTS LLC 10% 7% 1% Western Gas Resources, Inc. 4% 6% 29% Genesis Crude Oil, L.P. - - 18%
At December 31, 2000, the amounts receivable from Mobil Oil Corporation, Plains Marketing, L.P. and NGTS LLC were $23,621, $7,883 and $1,228, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 19 557 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $7,988,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 558 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 559 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 560 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays 10% of the Program's acquisition, drilling and completion costs and 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 58 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 561 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ------------- ------------- ------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 105,647 $ 97,004 $111,206 Reimbursement of general and administrative expenses $ 15,555 $ 6,624 $ 7,884
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 562 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 563 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 85-B, LTD. Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------------ Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 27, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 27, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 27, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 27, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
26 564 PARKER & PARSLEY 85-B, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Amended and Restated Certificate of - Limited Partnership of Parker & Parsley 85-B, Ltd. incorporated by reference to Exhibit A of the Partnership's Registration Statement on Form S-1 (Registration No. 2-99079) (hereinafter called the Partnership's Registration Statement) 4(a) Agreement of Limited Partnership of - Parker & Parsley 85-B, Ltd. incorporated by reference to an Exhibit of the Partnership's Registration Statement 4(b) Form of Subscription Agreement and Power - of Attorney incorporated by reference to an Exhibit of the Partnership's Registration Statement 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to an Exhibit of the Partnership's Registration Statement
27 565 PARKER & PARSLEY 85-B, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 323,533 $ 276,113 $ 619,365 $ 387,551 $ 341,048 $ 538,813 $ 616,863 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 10,050 $ 95,253 $ 52,922 $ 324,374 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 62,948 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 151,532 $ 105,824 $ 277,323 $ (14,097) $ (117,257) $ (177,091) $ 286,574 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,515 $ 1,058 $ 2,773 $ (141) $ (1,172) $ (1,771) $ 2,866 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 150,017 $ 104,766 $ 274,550 $ (13,956) $ (116,085) $ (175,320) $ 283,708 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 18.78 $ 13.12 $ 34.37 $ (1.75) $ (14.53) $ (21.95) $ 35.52 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 15.53 $ 16.99 $ 38.72 $ 14.48 $ 17.29 $ 33.72 $ 42.90(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 987,181 $ 966,599 $ 955,947 $ 992,521 $1,122,069 $1,386,758 $1,831,497 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $7.80 in 1996. 566 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Private Investment 85-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Private Investment 85-A, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 567 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 5,000 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 5,658 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,370 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 280.77 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.01 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 155.76 -- as of December 31, 2000 (c) $ 148.95 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 267.46 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 272.44 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 275 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2035, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 568 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 569 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 157,592 $ 74,084 Accounts receivable - oil and gas sales 42,165 68,251 ---------- ---------- Total current assets 199,757 142,335 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 3,399,009 3,399,009 Accumulated depletion (2,797,219) (2,780,814) ---------- ---------- Net oil and gas properties 601,790 618,195 ---------- ---------- $ 801,547 $ 760,530 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 12,433 $ 5,818 Partners' capital: Managing general partner 10,301 9,957 Limited partners (125 interests) 778,813 744,755 ---------- ---------- 789,114 754,712 ---------- ---------- $ 801,547 $ 760,530 ========== ==========
The financial information included as of June 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. 2 570 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 101,279 $ 118,958 $ 224,605 $ 237,006 Interest 1,097 1,577 2,232 2,653 Gain on disposition of assets - 9,798 - 33,459 -------- -------- -------- -------- 102,376 130,333 226,837 273,118 -------- -------- -------- -------- Costs and expenses: Oil and gas production 38,172 44,521 76,985 83,393 General and administrative 2,025 2,379 4,492 4,740 Depletion 8,596 9,101 16,405 19,958 Abandoned property - 184 - 7,039 -------- -------- -------- -------- 48,793 56,185 97,882 115,130 -------- -------- -------- -------- Net income $ 53,583 $ 74,148 $ 128,955 $ 157,988 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 536 $ 742 $ 1,290 $ 1,580 ======== ======== ======== ======== Limited partners $ 53,047 $ 73,406 $ 127,665 $ 156,408 ======== ======== ======== ======== Net income per limited partnership interest $ 424.38 $ 587.24 $1,021.32 $1,251.26 ======== ======== ======== ========
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. 3 571 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- --------- --------- Balance at January 1, 2001 $ 9,957 $ 744,755 $ 754,712 Distributions (946) (93,607) (94,553) Net income 1,290 127,665 128,955 -------- -------- -------- Balance at June 30, 2001 $ 10,301 $ 778,813 $ 789,114 ======== ======== ========
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. 4 572 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 128,955 $ 157,988 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 16,405 19,958 Gain on disposition of assets - (33,459) Changes in assets and liabilities: Accounts receivable 26,086 (11,974) Accounts payable 6,615 4,610 -------- -------- Net cash provided by operating activities 178,061 137,123 -------- -------- Cash flows from investing activities: Additions to oil and gas properties - (1,947) Proceeds from disposition of assets - 42,294 -------- -------- Net cash provided by investing activities - 40,347 -------- -------- Cash flows used in financing activities: Cash distributions to partners (94,553) (181,526) -------- -------- Net increase (decrease) in cash 83,508 (4,056) Cash at beginning of period 74,084 79,497 -------- -------- Cash at end of period $ 157,592 $ 75,441 ======== ========
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. 5 573 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Private Investment 85-A, Ltd. (the "Partnership") is a limited partnership organized in 1985 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $224,605 for the six months ended June 30, 2001 as compared to $237,006 for the same period in 2000. The decrease in revenues resulted from a decrease in production and lower 6 574 average prices received for oil, offset by higher average prices received for NGLs and gas. For the six months ended June 30, 2001, 5,787 barrels of oil, 1,864 barrels of natural gas liquids ("NGLs") and 7,461 mcf of gas were sold, or 8,895 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 6,332 barrels of oil, 2,722 barrels of NGLs and 10,079 mcf of gas were sold, or 10,734 BOEs. The average price per barrel of oil decreased $.44, or 2%, from $28.37 for the six months ended June 30, 2000 to $27.93 for the same period in 2001. The average price received per barrel of NGLs increased $1.58, or 11%, from $13.98 during the six months ended June 30, 2000 to $15.56 for the same period in 2001. The average price received per mcf of gas increased 137% from $1.92 during the six months ended June 30, 2000 to $4.55 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 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 six months ended June 30, 2001. Gain on disposition of assets of $33,459 was recognized during the six months ended June 30, 2000 from equipment credits on one well plugged and abandoned in the current period. Expenses incurred to plug and abandon this well were $7,039 for the six months ended June 30, 2000. Costs and Expenses: Total costs and expenses decreased to $97,882 for the six months ended June 30, 2001 as compared to $115,130 for the same period in 2000, a decrease of $17,248, or 15%. This decrease was due to declines in abandoned property costs, production costs, depletion and general and administrative expenses ("G&A"). Production costs were $76,985 for the six months ended June 30, 2001 and $83,393 for the same period in 2000, resulting in a $6,408, or 8%, decrease. The decrease was primarily the result of less workover costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 5%, from $4,740 for the six months ended June 30, 2000 to $4,492 for the same period in 2001, primarily due to a lower allocation 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. Depletion was $16,405 for the six months ended June 30, 2001 as compared to $19,958 for the same period in 2000, a decrease of $3,553, or 18%. This decrease was the result of a decline in oil production of 545 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 7 575 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 15% to $101,279 for the three months ended June 30, 2001 as compared to $118,958 for the same period in 2000. The decrease in revenues resulted from a decrease in production and declines in average prices received for oil and NGLs, offset by higher average prices received for gas. For the three months ended June 30, 2001, 2,952 barrels of oil, 852 barrels of NGLs and 2,954 mcf of gas were sold, or 4,296 BOEs. For the three months ended June 30, 2000, 2,940 barrels of oil, 1,426 barrels of NGLs and 5,021 mcf of gas were sold, or 5,203 BOEs. The average price received per barrel of oil decreased $2.37, or 8%, from $29.53 for the three months ended June 30, 2000 to $27.16 for the three months ended June 30, 2001. The average price received per barrel of NGLs decreased $1.05, or 7%, from $14.59 during the three months ended June 30, 2000 to $13.54 for the same period in 2001. The average price received per mcf of gas increased 43% to $3.23 during the three months ended June 30, 2001 from $2.26 during the same period in 2000. A gain on disposition of assets of $9,798 was recognized during the three months ended June 30, 2000 from equipment credits on one well plugged and abandoned in the current period. Expenses incurred to plug and abandon this well were $184 for the three months ended June 30, 2000. Costs and Expenses: Total costs and expenses decreased to $48,793 for the three months ended June 30, 2001 as compared to $56,185 for the same period in 2000, a decrease of $7,392, or 13%. This decrease was due to declines in production cost, depletion, G&A and abandoned property costs. Production costs were $38,172 for the three months ended June 30, 2001 and $44,521 for the same period in 2000 resulting in a $6,349 decrease, or 14%. The decrease was due to lower workover costs. During this period, G&A decreased 15%, from $2,379 for the three months ended June 30, 2000 to $2,025 for the same period in 2001, primarily due to a lower allocation 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 a decline in audit and tax fees. Depletion was $8,596 for the three months ended June 30, 2001 as compared to $9,101 for the same period in 2000, a decrease of $505, or 6%. 8 576 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $40,938 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to a reduction in working capital of $40,065 and declines in production costs of $6,408, G&A expenses of $248 and abandoned property costs of $7,039, offset by a decline in oil and gas receipts of $12,822. The decline in oil and gas receipts resulted from a decline in production of $40,493 during 2001 as compared to the same period in 2000 and $2,784 due to lower average prices received for oil, offset by an increase in gas and NGL prices during 2001 which contributed an additional $30,455 to oil and gas receipts. The decrease in production costs was primarily due to lower workover costs. 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. Net Cash Provided by Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2000 were related to expenditures for equipment upgrades on various oil and gas properties. Proceeds from disposition of assets of $42,294 were received during the six months ended June 30, 2000. The proceeds were primarily from equipment credits on one well plugged and abandoned during 2000. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $94,553, of which $946 was distributed to the managing general partner and $93,607 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $181,526, of which $1,815 was distributed to the managing general partner and $179,711 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common 9 577 stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 578 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 579 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Private Investment 85-A, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley Private Investment 85-A, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Private Investment 85-A, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 580 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------------- ---------------- ASSETS ------ Current assets: Cash $ 74,084 $ 79,497 Accounts receivable - oil and gas sales 68,251 45,956 ------------ ------------- Total current assets 142,335 125,453 ------------ ------------- Oil and gas properties - at cost, based on the successful efforts accounting method 3,399,009 4,113,242 Accumulated depletion (2,780,814) (3,391,494) ------------ ------------- Net oil and gas properties 618,195 721,748 ------------ ------------- $ 760,530 $ 847,201 ============= ============== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 5,818 $ 8,160 Partners' capital: Managing general partner 9,957 10,800 Limited partners (125 interests) 744,755 828,241 ------------ ------------- 754,712 839,041 ------------ ------------- $ 760,530 $ 847,201 ============= ==============
The accompanying notes are an integral part of these financial statements. 3 581 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 502,432 $ 342,760 $ 269,068 Interest 6,051 3,587 3,856 Gain on disposition of assets 33,459 -- -- --------- --------- ---------- 541,942 346,347 272,924 --------- --------- ---------- Costs and expenses: Oil and gas production 164,183 157,138 173,592 General and administrative 10,049 6,855 6,018 Impairment of oil and gas properties 61,942 -- 130,873 Depletion 35,049 65,329 131,389 Abandoned property 7,038 -- -- --------- --------- ---------- 278,261 229,322 441,872 --------- --------- ---------- Net income (loss) $ 263,681 $ 117,025 $ (168,948) ========= ========= ========== Allocation of net income (loss): Managing general partner $ 2,637 $ 1,170 $ (1,689) ========= ========= ========== Limited partners $ 261,044 $ 115,855 $ (167,259) ========= ========= ========== Net income (loss) per limited partnership interest $2,088.35 $ 926.84 $(1,338.07) ========= ========= ==========
The accompanying notes are an integral part of these financial statements. 4 582 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ------------- -------------- --------------- Partners' capital at January 1, 1998 $ 13,952 $ 1,140,211 $ 1,154,163 Distributions (1,142) (112,983) (114,125) Net loss (1,689) (167,259) (168,948) ----------- ------------ ------------ Partners' capital at December 31, 1998 11,121 859,969 871,090 Distributions (1,491) (147,583) (149,074) Net income 1,170 115,855 117,025 ----------- ------------ ------------ Partners' capital at December 31, 1999 10,800 828,241 839,041 Distributions (3,480) (344,530) (348,010) Net income 2,637 261,044 263,681 ----------- ------------ ------------ Partners' capital at December 31, 2000 $ 9,957 $ 744,755 $ 754,712 ============ ============= =============
The accompanying notes are an integral part of these financial statements. 5 583 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------------- -------------- -------------- Cash flows from operating activities: Net income (loss) $ 263,681 $ 117,025 $ (168,948) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 61,942 - 130,873 Depletion 35,049 65,329 131,389 Gain on disposition of assets (33,459) - - Changes in assets and liabilities: Accounts receivable (22,295) (7,696) 9,222 Accounts payable (2,342) 1,422 2,238 ----------- ----------- ----------- Net cash provided by operating activities 302,576 176,080 104,774 ----------- ----------- ----------- Cash flows used in investing activities: Additions to oil and gas properties (1,948) (6,572) (1,756) Proceeds from disposition of assets 41,969 - - ----------- ----------- ----------- Net cash provided (used by) investing activities 40,021 (6,572) (1,756) ----------- ----------- ----------- Cash flows used in financing activities: Cash distributions to partners (348,010) (149,074) (114,125) ----------- ----------- ----------- Net increase (decrease) in cash (5,413) 20,434 (11,107) Cash at beginning of year 79,497 59,063 70,170 ----------- ----------- ----------- Cash at end of year $ 74,084 $ 79,497 $ 59,063 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 6 584 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Private Investment 85-A, Ltd. (the "Partnership") is a limited partnership organized in 1985 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as determined evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 585 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $61,942 and $130,873 related to its 8 586 proved oil and gas properties during 2000 and 1998, respectively. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $5,983 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Net income (loss) per statements of operations $ 263,681 $ 117,025 $ (168,948) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 32,046 62,742 129,509 Impairment of oil and gas properties for financial reporting purposes 61,942 - 130,873 Other, net (7,404) 1,067 (933) ------------ ----------- ------------ Net income per Federal income tax returns $ 350,265 $ 180,834 $ 90,501 ============= ============ =============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Development costs $ 1,948 $ 6,572 $ 1,756 ============ ============ ===========
Capitalized oil and gas properties consist of the following:
2000 1999 ---------------- ---------------- Proved properties: Property acquisition costs $ 102,103 $ 102,995 Completed wells and equipment 3,296,906 4,010,247 ------------ ------------ 3,399,009 4,113,242 Accumulated depletion (2,780,814) (3,391,494) ------------ ------------ Net oil and gas properties $ 618,195 $ 721,748 ============= =============
9 587 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 66,336 $ 73,804 $ 78,418 Reimbursement of general and administrative expenses $ 8,067 $ 3,581 $ 4,294
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership ------------------- --------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 588
Oil and NGLs Gas (bbls) (mcf) -------------------- ------------------- Net proved reserves at January 1, 1998 271,658 288,529 Revisions (91,942) (76,028) Production (21,200) (22,343) ------------ ------------ Net proved reserves at December 31, 1998 158,516 190,158 Revisions 180,472 261,855 Production (20,664) (23,218) ------------ ------------ Net proved reserves at December 31, 1999 318,324 428,795 Revisions 27,943 (50,880) Production (17,619) (20,905) ------------ ------------ Net proved reserves at December 31, 2000 328,648 357,010 ============ ============
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.00 per barrel of NGLs and $7.43 per mcf of gas, discounted at 10% was approximately $2,408,000 and undiscounted was $5,247,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ---------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and gas producing activities: Future cash inflows $ 10,071 $ 7,881 $ 1,713 Future production costs (4,824) (4,213) (1,293) ------------- ------------ ------------- 5,247 3,668 420 10% annual discount factor (2,839) (1,850) (139) ------------- ------------ ------------- Standardized measure of discounted future net cash flows $ 2,408 $ 1,818 $ 281 ============== ============= ==============
11 589
For the years ended December 31, ---------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (338) $ (186) $ (95) Net changes in prices and production costs 820 905 (674) Revisions of previous quantity estimates 130 1,414 (124) Accretion of discount 182 28 109 Changes in production rates, timing and other (204) (624) (21) ------------- ------------ ------------ Change in present value of future net revenues 590 1,537 (805) ------------- ------------ ------------ Balance, beginning of year 1,818 281 1,086 ------------- ------------ ------------ Balance, end of year $ 2,408 $ 1,818 $ 281 ============== ============= =============
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 64% 60% - Genesis Crude Oil, L.P. - - 63% Western Gas Resources, Inc. 3% 6% 25%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $27,002 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion 12 590 of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $5,000,000. Pioneer USA was required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 591 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 47% to $502,432 for 2000 as compared to $342,760 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 11,945 barrels of oil, 5,674 barrels of natural gas liquids ("NGLs") and 20,905 mcf of gas were sold, or 21,103 barrel of oil equivalents ("BOEs"). In 1999, 14,568 barrels of oil, 6,096 barrels of NGLs and 23,218 mcf of gas were sold, or 24,534 BOEs. 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 increased $13.28, or 79%, from $16.91 in 1999 to $30.19 in 2000. The average price received per barrel of NGLs increased $5.27, or 53%, from $9.95 in 1999 to $15.22 in 2000. The average price received per mcf of gas increased 72% from $1.54 in 1999 to $2.65 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets recognized during 2000 of $33,459 was due to equipment credits received on two wells plugged and abandoned during the current year. Abandoned property costs of $7,038 incurred in 2000 related to the abandonment of these two wells. Total costs and expenses increased in 2000 to $278,261 as compared to $229,322 in 1999, an increase of $48,939, or 21%. The increase was primarily due to the impairment of oil and gas properties and increases in production costs, abandoned property costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $164,183 in 2000 and $157,138 in 1999, resulting in a $7,045 increase, or 4%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and workover costs incurred to stimulate well production, offset by a decline in well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 47% from $6,855 in 1999 to $10,049 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $8,067 in 2000 and $3,581 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $61,942 related to its oil and gas properties during 2000. 592 Depletion was $35,049 in 2000 as compared to $65,329 in 1999, representing a decrease of $30,280, or 46%. This decrease was primarily due to a 20,767 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a decline in oil production of 2,623 barrels for the period ended December 31, 2000 compared to the same period in 1999. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 27% to $342,760 from $269,068 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 14,568 barrels of oil, 6,096 barrels of NGLs and 23,218 mcf of gas were sold, or 24,534 BOEs. In 1998, 14,874 barrels of oil, 6,326 barrels of NGLs and 22,343 mcf of gas were sold, or 24,924 BOEs. The average price received per barrel of oil increased $3.71, or 28%, from $13.20 in 1998 to $16.91 in 1999. The average price received per barrel of NGLs increased $3.46, or 53%, from $6.49 in 1998 to $9.95 in 1999. The average price received per mcf of gas increased 9% from $1.41 in 1998 to $1.54 in 1999. Total costs and expenses decreased in 1999 to $229,322 as compared to $441,872 in 1998, a decrease of $212,550, or 48%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $157,138 in 1999 and $173,592 in 1998, resulting in a $16,454 decrease, or 9%. The decrease was due to declines in well maintenance costs and ad valorem taxes. During this period, G&A increased 14% from $6,018 in 1998 to $6,855 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $3,581 in 1999 and $4,294 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $130,873 related to its oil and gas properties during 1998. Depletion was $65,329 in 1999 compared to $131,389 in 1998, representing a decrease of $66,060, or 50%. This decrease was the result of an increase in proved reserves of 120,513 barrels of oil during 1999 due to higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 593 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $126,496 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $162,136, offset by increases in production costs paid of $7,045, G&A expenses paid of $3,194, abandoned property costs paid of $7,038 and working capital of $18,363. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $253,878 to oil and gas receipts, offset by $91,742 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and workover costs incurred to stimulate well production, offset by a decline in well maintenance costs. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Proceeds from disposition of assets during 2000 of $41,969 were related to $33,459 salvage income received on two wells plugged and abandoned during the current year and $8,510 from equipment credits received on one active well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $348,010, of which $3,480 was distributed to the managing general partner and $344,530 to the limited partners. In 1999, cash distributions to the partners were $149,074, of which $1,491 was distributed to the managing general partner and $147,583 to the limited partners. 594 PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 224,605 $ 237,006 $ 502,432 $ 342,760 $ 269,068 $ 396,312 $ 474,256 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 61,942 $ -- $ 130,873 $ 154,523 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 128,955 $ 157,988 $ 263,681 $ 117,025 $ (168,948) $ (35,440) $ 214,177 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,290 $ 1,580 $ 2,637 $ 1,170 $ (1,689) $ (354) $ 2,142 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 127,665 $ 156,408 $ 261,044 $ 115,855 $ (167,259) $ (35,086) $ 212,035 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 1,021.32 $ 1,251.26 $ 2,088.35 $ 926.84 $(1,338.07) $ (280.69) $ 1,696.28 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 746.86 $ 1,437.69 $ 2,756.24 $ 1,180.66 $ 903.86 $ 1,914.33 $ 2,012.00 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 801,547 $ 828,273 $ 760,530 $ 847,201 $ 877,828 $1,158,663 $1,438,725 ========== ========== ========== ========== ========== ========== ==========
595 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Selected 85 Private Investment, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Private Selected 85 Private Investment, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 596 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 4,690 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 4,536 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,025 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 222.43 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.56 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 120.03 -- as of December 31, 2000 (c) $ 110.65 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 209.97 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 215.74 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 215 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2035, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 597 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 598 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 116,008 $ 32,773 Accounts receivable - oil and gas sales 59,116 78,218 ---------- ---------- Total current assets 175,124 110,991 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 3,864,140 3,864,140 Accumulated depletion (3,456,228) (3,441,568) ---------- ---------- Net oil and gas properties 407,912 422,572 ---------- ---------- $ 583,036 $ 533,563 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 11,773 $ 6,722 Partners' capital: Managing general partner 8,336 7,892 Limited partners (117 interests) 562,927 518,949 ---------- ---------- 571,263 526,841 ---------- ---------- $ 583,036 $ 533,563 ========== ==========
The financial information included as of June 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. 2 599 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 120,409 $ 106,941 $ 249,386 $ 196,468 Interest 768 881 1,548 1,473 Gain on disposition of assets - - 2,574 - -------- -------- -------- -------- 121,177 107,822 253,508 197,941 -------- -------- -------- -------- Costs and expenses: Oil and gas production 50,842 42,099 101,173 82,419 General and administrative 2,409 2,138 4,988 3,929 Depletion 7,874 8,685 14,660 16,778 -------- -------- -------- -------- 61,125 52,922 120,821 103,126 -------- -------- -------- -------- Net income $ 60,052 $ 54,900 $ 132,687 $ 94,815 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 601 $ 549 $ 1,327 $ 948 ======== ======== ======== ======== Limited partners $ 59,451 $ 54,351 $ 131,360 $ 93,867 ======== ======== ======== ======== Net income per limited partnership interest $ 508.13 $ 464.54 $1,122.74 $ 802.28 ======== ======== ======== ========
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. 3 600 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 7,892 $ 518,949 $ 526,841 Distributions (883) (87,382) (88,265) Net income 1,327 131,360 132,687 -------- --------- --------- Balance at June 30, 2001 $ 8,336 $ 562,927 $ 571,263 ======== ========= =========
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. 4 601 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 132,687 $ 94,815 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 14,660 16,778 Gain on disposition of assets (2,574) - Changes in assets and liabilities: Accounts receivable 19,102 (11,456) Accounts payable 5,051 3,106 --------- --------- Net cash provided by operating activities 168,926 103,243 --------- --------- Cash flows from investing activities: Additions to oil and gas properties - (885) Proceeds from disposition of assets 2,574 - --------- --------- Net cash provided by (used in) investing activities 2,574 (885) --------- --------- Cash flows used in financing activities: Cash distributions to partners (88,265) (98,809) --------- --------- Net increase in cash 83,235 3,549 Cash at beginning of period 32,773 39,610 --------- --------- Cash at end of period $ 116,008 $ 43,159 ========= =========
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. 5 602 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Selected 85 Private Investment, Ltd. (the "Partnership") is a limited partnership organized in 1985 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 27% to $249,386 for the six months ended June 30, 2001 as compared to $196,468 for the same period in 2000. The increase in revenues resulted from higher average prices received and an increase in production. For the six months ended June 30, 2001, 5,370 barrels of 6 603 oil, 2,580 barrels of natural gas liquids ("NGLs") and 12,602 mcf of gas were sold, or 10,050 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 4,791 barrels of oil, 2,883 barrels of NGLs and 11,058 mcf of gas were sold, or 9,517 BOEs. The average price received per barrel of oil increased $.31, or 1%, from $27.61 for the six months ended June 30, 2000 to $27.92 for the same period in 2001. The average price received per barrel of NGLs increased $2.11, or 15%, from $14.13 during the six months ended June 30, 2000 to $16.24 for the same period in 2001. The average price received per mcf of gas increased 116% from $2.12 during the six months ended June 30, 2000 to $4.57 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $120,821 for the six months ended June 30, 2001 as compared to $103,126 for the same period in 2000, an increase of $17,695 or 17%. This increase was due to higher production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $101,173 for the six months ended June 30, 2001 and $82,419 for the same period in 2000 resulting in an $18,754 increase, or 23%. This increase was the result of additional well maintenance costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 27%, from $3,929 for the six months ended June 30, 2000 to $4,988 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and increases in audit and tax fees. Depletion was $14,660 for the six months ended June 30, 2001 as compared to $16,778 for the same period in 2000, a decrease of $2,118, or 13%. This decrease was the result of a positive revision to proved reserves on significant wells during the period ended June 30, 2001, offset by an increase in oil production of 579 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 13% to $120,409 for the three months ended June 30, 2001 as compared to $106,941 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas 7 604 and an increase in production, offset by lower average prices received for oil and NGLs. For the three months ended June 30, 2001, 2,829 barrels of oil, 1,389 barrels of NGLs and 6,018 mcf of gas were sold, or 5,221 BOEs. For the three months ended June 30, 2000, 2,521 barrels of oil, 1,528 barrels of NGLs and 5,665 mcf of gas were sold, or 4,993 BOEs. The average price received per barrel of oil decreased $.31, or 1%, from $27.86 for the three months ended June 30, 2000 to $27.55 for the three months ended June 30, 2001. The average price received per barrel of NGLs decreased $.12, or 1%, from $14.69 during the three months ended June 30, 2000 to $14.57 for the same period in 2001. The average price received per mcf of gas increased 46% to $3.69 during the three months ended June 30, 2001 from $2.52 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $61,125 for the three months ended June 30, 2001 as compared to $52,922 for the same period in 2000, an increase of $8,203, or 16%. This increase was due to higher production costs and G&A, offset by a decline in depletion. Production costs were $50,842 for the three months ended June 30, 2001 and $42,099 for the same period in 2000 resulting in an $8,743, or 21%, increase. The increase was due to additional well maintenance costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. During this period, G&A increased 13%, from $2,138 for the three months ended June 30, 2000 to $2,409 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $7,874 for the three months ended June 30, 2001 as compared to $8,685 for the same period in 2000, a decrease of $811, or 9%. This decrease was the result of a positive revision to proved reserves on significant wells during the period ended June 30, 2001, offset by an increase in oil production of 308 barrels for the three months ended June 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 $65,683 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $52,993 and a reduction in working capital of $32,503, offset by increases in production costs of $18,754 and G&A expenses of $1,059. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $34,695 to oil and gas receipts and $18,298 resulting from an increase in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to increased production taxes 8 605 associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2000 were for expenditures related to equipment upgrades on various oil and gas properties. Proceeds from disposition of assets of $2,574 received during the six months ended June 30, 2001 were due to equipment credits received on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $88,265, of which $883 was distributed to the managing general partner and $87,382 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $98,809, of which $988 was distributed to the managing general partner and $97,821 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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. 9 606 The limited partners are urged to read the proxy statement/prospectus of Pioneer filed with the Securities and Exchange Commission, when it is finalized, 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 preliminary and (when filed) 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. 10 607 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 608 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Selected 85 Private Investment, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley Selected 85 Private Investment, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Selected 85 Private Investment, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 609 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 --------- --------- ASSETS Current assets: Cash $ 32,773 $ 39,610 Accounts receivable - oil and gas sales 78,218 45,630 --------- --------- Total current assets 110,991 85,240 --------- --------- Oil and gas properties - at cost, based on the successful efforts accounting method 3,864,140 3,859,832 Accumulated depletion (3,441,568) (3,408,713) --------- --------- Net oil and gas properties 422,572 451,119 ------- --------- $ 533,563 $ 536,359 ======= ========= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 6,722 $ 8,178 Partners' capital: Managing general partner 7,892 7,905 Limited partners (117 interests) 518,949 520,276 ------- --------- 526,841 528,181 $ 533,563 $ 536,359 ======== =========
The accompanying notes are an integral part of these financial statements. 3 610 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 -------- ------- ------- Revenues: Oil and gas $ 441,200 $ 252,399 $ 206,099 Interest 3,585 1,728 2,200 ------- ------- ------- 444,785 254,127 208,299 ------- ------- ------- Costs and expenses: Oil and gas production 184,074 153,832 153,789 General and administrative 8,824 5,048 4,122 Impairment of oil and gas properties - - 92,133 Depletion 31,732 33,899 118,737 ------- ------- ------- 224,630 192,779 368,781 ------- ------- ------- Net income (loss) $ 220,155 $ 61,348 $ (160,482) ------- ------- ------- Allocation of net income (loss): Managing general partner $ 2,202 $ 613 $ (1,605) ======= ======= ======= Limited partners $ 217,953 $ 60,735 $ (158,877) ======= ======= ======= Net income (loss) per limited partnership interest $1,862.85 $ 519.10 $(1,357.92) ======== ======= ========
The accompanying notes are an integral part of these financial statements. 4 611 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------- -------- ----- Partners' capital at January 1, 1998 $ 10,253 $ 752,707 $ 762,960 Distributions (756) (74,884) (75,640) Net loss (1,605) (158,877) (160,482) ------ -------- -------- Partners' capital at December 31, 1998 7,892 518,946 526,838 Distributions (600) (59,405) (60,005) Net income 613 60,735 61,348 ------ -------- -------- Partners' capital at December 31, 1999 7,905 520,276 528,181 Distributions (2,215) (219,280) (221,495) Net income 2,202 217,953 220,155 ------ -------- -------- Partners' capital at December 31, 2000 $ 7,892 $ 518,949 $ 526,841 ======= ======= =======
The accompanying notes are an integral part of these financial statements. 5 612 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------- ------ ------- Cash flows from operating activities: Net income (loss) $ 220,155 $ 61,348 $ (160,482) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 92,133 Depletion 31,732 33,899 118,737 Changes in assets and liabilities: Accounts receivable (32,588) (22,369) 20,237 Accounts payable (1,456) 2,063 (3,647) -------- ------ ------- Net cash provided by operating activities 217,843 74,941 66,978 -------- ------ ------- Cash flows from investing activities: Additions to oil and gas properties (3,185) (3,269) (4,417) Proceeds from asset dispositions - - 3,057 -------- ------ ------- Net cash used in investing activities (3,185) (3,269) (1,360) -------- ------ ------- Cash flows used in financing activities: Cash distributions to partners (221,495) (60,005) (75,640) -------- ------ ------- Net increase (decrease) in cash (6,837) 11,667 (10,022) Cash at beginning of year 39,610 27,943 37,965 -------- ------ ------- Cash at end of year $ 32,773 $ 39,610 $ 27,943 ======== ====== =======
The accompanying notes are an integral part of these financial statements. 6 613 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Selected 85 Private Investment, Ltd. (the "Partnership") is a limited partnership organized in 1985 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). The Partnership engages oil and gas development and production in Texas and is not involved in any industry segment other than oil and gas. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the 7 614 respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $92,133 related to its proved oil and gas properties during 1998. 8 615 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $152,466 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------- ------- -------- Net income (loss) per statements of operations $ 220,155 $ 61,348 $ (160,482) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 28,649 30,978 116,164 Impairment of oil and gas properties for financial reporting purposes - - 92,133 Salvage income - - 2,904 Other, net (493) (727) 859 Net income per Federal income tax returns $ 248,311 $ 91,599 $ 51,578 ======== ======= ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ------ ------- ------- Development costs $ 3,185 $ 3,269 $ 4,417 ====== ======= =======
Capitalized oil and gas properties consist of the following:
2000 1999 --------- --------- Proved properties: Property acquisition costs $ 141,791 $ 141,791 Completed wells and equipment 3,722,349 3,718,041 --------- --------- 3,864,140 3,859,832 Accumulated depletion (3,441,568) (3,408,713) Net oil and gas properties $ 422,572 $ 451,119 ========= =========
9 616 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 66,669 $ 78,823 $ 77,025 Reimbursement of general and administrative expenses $ 6,888 $ 1,886 $ 2,442
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to the Partnership and Pioneer USA as follows:
Pioneer USA (1) Partnership -------------- ----------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 617
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 186,210 271,087 Revisions (76,968) (74,549) Production (15,439) (25,328) -------- -------- Net proved reserves at December 31, 1998 93,803 171,210 Revisions 121,880 243,365 Production (14,598) (27,627) -------- -------- Net proved reserves at December 31, 1999 201,085 386,948 Revisions 46,612 21,005 Production (15,698) (22,987) -------- -------- Net proved reserves at December 31, 2000 231,999 384,966 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.63 per barrel of oil, $13.32 per barrel of NGLs and $7.55 per mcf of gas, discounted at 10% was approximately $1,829,000 and undiscounted was approximately $3,687,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, -------------------------------- 2000 1999 1998 --------- ---------- --------- (in thousands) Oil and gas producing activities: Future cash inflows $ 7,746 $ 4,941 $ 1,023 Future production costs (4,059) (2,870) (797) ------ ------- ------ 3,687 2,071 226 10% annual discount factor (1,858) (980) (69) ------ ------- ------ Standardized measure of discounted future net cash flows $ 1,829 $ 1,091 $ 157 ====== ======= ======
11 618
For the years ended December 31, -------------------------------- 2000 1999 1998 --------- ---------- --------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (257) $ (98) $ (53) Net changes in prices and production costs 658 492 (426) Revisions of previous quantity estimates 328 882 (98) Accretion of discount 109 16 70 Changes in production rates, timing and other (100) (358) (32) ------ ------- ------ Change in present value of future net revenues 738 934 (539) ------ ------- ------ Balance, beginning of year 1,091 157 696 ------ ------- ------ Balance, end of year $ 1,829 $ 1,091 $ 157 ====== ======= ======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 57% 49% - Koch Midstream Services Company 9% 11% - NGTS LLC 9% 10% - Western Gas Resources, Inc. 4% 10% 34% Genesis Crude Oil, L.P. - - 52%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $26,039, which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the 12 619 Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $4,690,000. Pioneer USA was required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 620 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 75% to $441,200 for 2000 as compared to $252,399 in 1999. The increase in revenues resulted from higher average prices received and a slight increase in production. In 2000, 9,509 barrels of oil, 6,189 barrels of natural gas liquids ("NGLs") and 22,987 mcf of gas were sold, or 19,529 barrel of oil equivalents ("BOEs"). In 1999, 7,828 barrels of oil, 6,770 barrels of NGLs and 27,627 mcf of gas were sold, or 19,203 BOEs. 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 increased $12.32, or 71%, from $17.27 in 1999 to $29.59 in 2000. The average price received per barrel of NGLs increased $5.03, or 48%, from $10.49 in 1999 to $15.52 in 2000. The average price received per mcf of gas increased 66% from $1.67 in 1999 to $2.77 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $224,630 as compared to $192,779 in 1999, an increase of $31,851, or 17%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $184,074 in 2000 and $153,832 in 1999, resulting in a $30,242 increase, or 20%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and workover costs incurred to stimulate well production, offset by a decline in well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 75% from $5,048 in 1999 to $8,824 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $6,888 in 2000 and $1,886 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $31,732 in 2000 as compared to $33,899 in 1999, representing a decrease of $2,167, or 6%. This decrease was primarily due to a 28,956 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices, offset by an increase in oil production of 1,681 barrels for the period ended December 31, 2000 compared to the same period in 1999. 621 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 22% to $252,399 from $206,099 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 7,828 barrels of oil, 6,770 barrels of NGLs and 27,627 mcf of gas were sold, or 19,203 BOEs. In 1998, 9,075 barrels of oil, 6,364 barrels of NGLs and 25,328 mcf of gas were sold, or 19,660 BOEs. The average price received per barrel of oil increased $3.83, or 28%, from $13.44 in 1998 to $17.27 in 1999. The average price received per barrel of NGLs increased $3.50, or 50%, from $6.99 in 1998 to $10.49 in 1999. The average price received per mcf of gas increased 7% from $1.56 in 1998 to $1.67 in 1999. Total costs and expenses decreased in 1999 to $192,779 as compared to $368,781 in 1998, a decrease of $176,002, or 48%. The decrease was primarily due to declines in the impairment of oil and gas properties and depletion, offset by increases in G&A and production costs. Production costs were $153,832 in 1999 and $153,789 in 1998, resulting in a $43 increase. The increase was due to increases in production taxes due to increased oil and gas revenues and additional well maintenance costs incurred to stimulate well production, offset by a decline in ad valorem taxes. During this period, G&A increased 22% from $4,122 in 1998 to $5,048 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $1,886 in 1999 and $2,442 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $92,133 related to its oil and gas properties during 1998. Depletion was $33,899 in 1999 compared to $118,737 in 1998, representing a decrease of $84,838, or 71%. This decrease was the result of a combination of factors that included an increase in proved reserves of 65,798 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 1,247 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 622 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $142,902 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $190,658, offset by increases in production costs paid of $30,242, G&A expenses paid of $3,776 and working capital of $13,738. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $162,805 to oil and gas receipts and an increase of $27,853 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and workover costs incurred to stimulate well production, offset by a decline in well maintenance costs.. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $221,495, of which $2,215 was distributed to the managing general partner and $219,280 to the limited partners. In 1999, cash distributions to the partners were $60,005, of which $600 was distributed to the managing general partner and $59,405 to the limited partners. 623 PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 249,386 $ 196,468 $ 441,200 $ 252,399 $ 206,099 $ 324,463 $ 387,747 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 92,133 $ 258,548 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 27,488 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 132,687 $ 94,815 $ 220,155 $ 61,348 $ (160,482) $ (197,320) $ 165,606 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,327 $ 948 $ 2,202 $ 613 $ (1,605) $ (1,973) $ 1,656 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 131,360 $ 93,867 $ 217,953 $ 60,735 $ (158,877) $ (195,347) $ 163,950 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 1,122.74 $ 802.28 $ 1,862.85 $ 519.10 $(1,357.92) $(1,669.63) $ 1,401.28 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 746.85 $ 836.08 $ 1,874.19 $ 507.74 $ 640.03 $ 1,393.78 $ 1,583.47(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 583,036 $ 535,471 $ 533,563 $ 536,359 $ 532,953 $ 772,722 $1,133,345 ========== ========== ========== ========== ========== ========== ==========
--------- (a) Including litigation settlement per limited partnership interest of $234.94 in 1996. 624 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 86-A, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 86-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 86-A, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 625 PARKER & PARSLEY 86-A, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 10,131 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 13,871 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,717 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 170.04 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.14 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 54.68 -- as of December 31, 2000 (c) $ 58.31 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 156.87 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 164.88 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 225 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2036, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 626 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, 2001 Commission File No. 33-3353A PARKER & PARSLEY 86-A, LTD. (Exact name of Registrant as specified in its charter) Texas 75-2124884 -------------------------------------------- --------------------- (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 / / 627 PARKER & PARSLEY 86-A, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000........................................ 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000....................... 4 Statement of Partners' Capital for the six months ended June 30, 2001....................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000.............................. 6 Notes to Financial Statements............................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................ 11 Signatures.................................................. 12
2 628 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 72,545 $ 46,169 Accounts receivable - oil and gas sales 108,397 150,881 ---------- ---------- Total current assets 180,942 197,050 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 7,132,242 7,132,242 Accumulated depletion (6,734,886) (6,721,529) ---------- ---------- Net oil and gas properties 397,356 410,713 ---------- ---------- $ 578,298 $ 607,763 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 20,057 $ 12,398 Partners' capital: Managing general partner 4,275 4,647 Limited partners (10,131 interests) 553,966 590,718 ---------- ---------- 558,241 595,365 ---------- ---------- $ 578,298 $ 607,763 ========== ==========
The financial information included as of June 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. 3 629 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 190,561 $ 196,767 $ 410,079 $ 393,746 Interest 782 1,681 2,598 2,821 Gain on disposition of assets - 18,734 - 28,971 -------- -------- -------- -------- 191,343 217,182 412,677 425,538 -------- -------- -------- -------- Costs and expenses: Oil and gas production 133,669 86,961 234,808 176,913 General and administrative 5,717 5,903 9,966 11,812 Depletion 6,758 6,831 13,357 13,894 -------- -------- -------- -------- 146,144 99,695 258,131 202,619 -------- -------- -------- -------- Net income $ 45,199 $ 117,487 $ 154,546 $ 222,919 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 452 $ 1,175 $ 1,545 $ 2,229 ======== ======== ======== ======== Limited partners $ 44,747 $ 116,312 $ 153,001 $ 220,690 ======== ======== ======== ======== Net income per limited partnership interest $ 4.41 $ 11.48 $ 15.10 $ 21.78 ======== ======== ======== ========
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. 4 630 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 4,647 $ 590,718 $ 595,365 Distributions (1,917) (189,753) (191,670) Net income 1,545 153,001 154,546 -------- --------- --------- Balance at June 30, 2001 $ 4,275 $ 553,966 $ 558,241 ======== ========= =========
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. 5 631 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 154,546 $ 222,919 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 13,357 13,894 Gain on disposition of assets - (28,971) Changes in assets and liabilities: Accounts receivable 42,484 (39,907) Accounts payable 7,659 4,860 --------- --------- Net cash provided by operating activities 218,046 172,795 --------- --------- Cash flows from investing activities: Additions to oil and gas properties - (5,250) Proceeds from asset dispositions - 28,971 --------- --------- Net cash provided by investing activities - 23,721 --------- --------- Cash flows used in financing activities: Cash distributions to partners (191,670) (205,060) --------- --------- Net increase (decrease) in cash 26,376 (8,544) Cash at beginning of period 46,169 76,838 --------- --------- Cash at end of period $ 72,545 $ 68,294 ========= =========
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. 6 632 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 86-A, Ltd. (the "Partnership") is a limited partnership organized in 1986 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 4% to $410,079 for the six months ended June 30, 2001 as compared to $393,746 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 8,359 barrels of oil, 4,940 barrels of natural gas liquids ("NGLs") and 20,166 mcf of gas were 7 633 sold, or 16,660 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 9,168 barrels of oil, 6,254 barrels of NGLs and 26,019 mcf of gas were sold, or 19,759 BOEs. The average price received per barrel of oil increased slightly from $27.71 for the six months ended June 30, 2000 to $27.73 for the same period in 2001. The average price received per barrel of NGLs increased $2.56, or 18%, from $14.19 during the six months ended June 30, 2000 to $16.75 for the same period in 2001. The average price received per mcf of gas increased 142% from $1.96 during the six months ended June 30, 2000 to $4.74 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 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 six months ended June 30, 2001. A gain on disposition of assets of $28,971 was recognized during the six months ended June 30, 2000 resulting from equipment credits received on two fully depleted wells. Costs and Expenses: Total costs and expenses increased to $258,131 for the six months ended June 30, 2001 as compared to $202,619 for the same period in 2000, an increase of $55,512, or 27%. This increase was due to an increase in production costs, offset by declines in general and administrative expenses ("G&A") and depletion. Production costs were $234,808 for the six months ended June 30, 2001 and $176,913 for the same period in 2000 resulting in a $57,895 increase, or 33%. This increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 16% from $11,812 for the six months ended June 30, 2000 to $9,966 for the same period in 2001. The decrease is primarily attributable to a decline in audit and tax fees. Depletion was $13,357 for the six months ended June 30, 2001 as compared to $13,894 for the same period in 2000, a decrease of $537, or 4%. This decrease was primarily due to a decline in oil production of 809 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 3% to $190,561 for the three months ended June 30, 2001 as compared to $196,767 for the same period in 2000. The decrease in revenues resulted from a decrease in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 4,389 barrels of oil, 2,558 barrels of NGLs and 9,290 mcf of gas were sold, or 8,495 BOEs. For the 8 634 three months ended June 30, 2000, 4,548 barrels of oil, 2,908 barrels of NGLs and 11,558 mcf of gas were sold, or 9,382 BOEs. The average price received per barrel of oil decreased $.67, or 2%, from $27.97 for the three months ended June 30, 2000 to $27.30 for the same period in 2001. The average price received per barrel of NGLs increased $.27, or 2%, from $14.53 during the three months ended June 30, 2000 to $14.80 for the same period in 2001. The average price received per mcf of gas increased 50% from $2.36 during the three months ended June 30, 2000 to $3.54 for the same period in 2001. Gain on disposition of assets of $18,734 was recognized during the three months ended June 30, 2000 resulting from equipment credits received on two fully depleted wells. Costs and Expenses: Total costs and expenses increased to $146,144 for the three months ended June 30, 2001 as compared to $99,695 for the same period in 2000, an increase of $46,449, or 47%. This increase was due to an increase in production costs, offset by declines in G&A and depletion. Production costs were $133,669 for the three months ended June 30, 2001 and $86,961 for the same period in 2000 resulting in a $46,708 increase, or 54%. This increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A decreased 3% from $5,903 for the three months ended June 30, 2000 to $5,717 for the same period in 2001. The decrease is primarily attributable to a decline in audit and tax fees. Depletion was $6,758 for the three months ended June 30, 2001 as compared to $6,831 for the same period in 2000, a decrease of $73, or 1%. This decrease was primarily due to a decline in oil production of 159 barrels for the three months ended June 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 $45,251 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase of $16,110 in oil and gas sales receipts and reductions of $85,190 in working capital and $1,846 in G&A expenses, offset by an increase of $57,895 in production costs. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $88,287 to oil and gas receipts, offset by $72,177 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production. The decrease in G&A was primarily due to a decline in audit and tax fees. 9 635 Net Cash Provided by Investing Activities The Partnership's principal investing activities for the six months ended June 30, 2000 included expenditures related to equipment upgrades on active properties. Proceeds from asset dispositions of $28,971 received during the six months ended June 30, 2000 were due to equipment credits received on two fully depleted wells. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $191,670, of which $1,917 was distributed to the managing general partner and $189,753 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $205,060, of which $2,051 was distributed to the managing general partner and $203,009 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) final proxy statement/prospectus and other relevant documents relating to 10 636 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 637 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) SIGNATURES 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 86-A, LTD. By: Pioneer Natural Resources USA, Inc. Managing General Partner Dated: August 6, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 638 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-3353-A PARKER & PARSLEY 86-A, LTD. (Exact name of Registrant as specified in its charter)
TEXAS 75-2124884 ----------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $10,096,000. As of March 8, 2001, the number of outstanding limited partnership interests was 10,131. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 639 PART I ITEM 1. BUSINESS Parker & Parsley 86-A, Ltd. (the "Partnership") is a limited partnership organized in 1986 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 10,131 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers. Of the Partnership's total oil and gas revenues for 2000 approximately 51% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 640 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 32 oil and gas wells. Five wells were sold and one well was abandoned. At December 31, 2000, 26 wells were producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 641 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 10,131 outstanding limited partnership interests held of record by 962 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $462,584 and $154,204, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 --------------- --------------- --------------- --------------- --------------- Operating results: ----------------- Oil and gas sales $ 881,177 $ 555,781 $ 415,842 $ 605,964 $ 843,204 =========== =========== ========== ========== =========== Gain on litigation settlement, net $ - $ - $ - $ - $ 290,690 =========== =========== ========== ========== =========== Impairment of oil and gas properties $ 12,800 $ 28,052 $ 23,593 $ 496,887 $ - =========== =========== ========== ========== =========== Net income (loss) $ 487,574 $ 96,423 $ (248,515) $ (467,727) $ 741,771 =========== =========== ========== ========== =========== Allocation of net income (loss): Managing general partner $ 4,876 $ 964 $ (2,485) $ (4,677) $ 7,417 =========== =========== ========== ========== =========== Limited partners $ 482,698 $ 95,459 $ (246,030) $ (463,050) $ 734,354 =========== =========== ========== ========== =========== Limited partners' net income (loss) per limited partnership interest $ 47.65 $ 9.42 $ (24.28) $ (45.71) $ 72.49 =========== =========== ========== ========== =========== Limited partners' cash distributions per limited partnership interest $ 45.66 $ 15.22 $ 9.42 $ 27.44 $ 94.54 (a) =========== =========== ========== ========== =========== At year end: ----------- Identifiable assets $ 607,763 $ 594,270 $ 646,224 $ 1,000,424 $ 1,804,366 =========== =========== ========== ========== ===========
--------------- (a) Including litigation settlement per limited partnership interest of $28.41 in 1996. 4 642 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 59% to $881,177 for 2000 as compared to $555,781 in 1999. The increase in revenues resulted from higher average prices received, offset by a decrease in production. In 2000, 18,760 barrels of oil, 13,025 barrels of natural gas liquids ("NGLs") and 56,549 mcf of gas were sold, or 41,210 barrel of oil equivalents ("BOEs"). In 1999, 18,743 barrels of oil, 14,483 barrels of NGLs and 62,354 mcf of gas were sold, or 43,618 BOEs. 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 increased $11.87, or 70%, from $17.00 in 1999 to $28.87 in 2000. The average price received per barrel of NGLs increased $5.31, or 55%, from $9.63 in 1999 to $14.94 in 2000. The average price received per mcf of gas increased 63% from $1.57 in 1999 to $2.56 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $31,944 was recognized during 2000 resulting from equipment credits on two fully depleted wells. Total costs and expenses decreased in 2000 to $432,464 as compared to $463,135 in 1999, a decrease of $30,671, or 7%. The decrease was due to declines in depletion and the impairment of oil and gas properties, offset by increases in production costs and general and administrative expense ("G&A"). Production costs were $364,985 in 2000 and $341,430 in 1999, resulting in an increase of $23,555, or 7%. The increase was primarily due to higher production taxes associated with higher oil and gas prices, offset by a slight decline in well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 73% from $16,673 in 1999 to $28,772 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $24,184 in 2000 and $9,436 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of 5 643 the Partnership's assets may have occurred. As a result of the review and evaluation of its long- lived assets for impairment, the Partnership recognized non-cash charges of $12,800 and $28,052 related to its oil and gas properties during 2000 and 1999, respectively. Depletion was $25,907 in 2000 as compared to $76,980 in 1999, representing a decrease of $51,073, or 66%. This decrease was primarily due to a 40,953 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 34% to $555,781 from $415,842 in 1998. The increase in revenues resulted from higher average prices received and an increase in production from 1998 to 1999. In 1999, 18,743 barrels of oil, 14,483 barrels of NGLs and 62,354 mcf of gas were sold, or 43,618 BOEs. In 1998, 20,308 barrels of oil, 11,164 barrels of NGLs and 49,805 mcf of gas were sold, or 39,773 BOEs. The average price received per barrel of oil increased $3.68, or 28%, from $13.32 in 1998 to $17.00 in 1999. The average price received per barrel of NGLs increased $3.10, or 47%, from $6.53 in 1998 to $9.63 in 1999. The average price received per mcf of gas increased 8% from $1.46 in 1998 to $1.57 in 1999. Total costs and expenses decreased in 1999 to $463,135 as compared to $669,121 in 1998, a decrease of $205,986, or 31%. The decrease was due to declines in depletion and production costs, offset by increases in the impairment of oil and gas properties and G&A. Production costs were $341,430 in 1999 and $372,460 in 1998, resulting in a $31,030 decrease, or 8%. The decrease was due to declines in workover costs, well maintenance costs and ad valorem taxes, offset by an increase in production taxes due to an increase in oil and gas revenues. During this period, G&A increased 34% from $12,476 in 1998 to $16,673 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $9,436 in 1999 and $9,062 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $28,052 and $23,593 related to its oil and gas properties during 1999 and 1998, respectively. Depletion was $76,980 in 1999 compared to $260,592 in 1998. This represented a decrease of $183,612, or 70%. This decrease was the result of an increase in proved reserves of 148,893 barrels of oil during 1999 due to higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. 6 644 Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $229,299 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $328,536, offset by increases in production costs paid of $23,555, G&A expenses paid of $12,099 and working capital of $63,583. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $364,711 to oil and gas receipts, offset by a decrease of $36,175 resulting from a decrease in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices, offset by a slight decline in well maintenance costs. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 were for expenditures related to oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $31,944 received during 2000 were due to equipment credits received on two fully depleted wells. Proceeds of $120 were recognized in 1999 primarily from equipment credits received on active properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $467,257, of which $4,673 was distributed to the managing general partner and $462,584 to the limited partners. In 1999, cash distributions to the partners were $155,762, of which $1,558 was distributed to the managing general partner and $154,204 to the limited partners. 7 645 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 86-A, Ltd: Independent Auditors' Report.......................................................................... 10 Balance Sheets as of December 31, 2000 and 1999....................................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................................. 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998.................................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................................. 14 Notes to Financial Statements......................................................................... 15
8 646 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 86-A, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 86-A, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 86-A, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 647 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------------- ---------------- ASSETS ------ Current assets: Cash $ 46,169 $ 76,838 Accounts receivable - oil and gas sales 150,881 74,543 ---------- ---------- Total current assets 197,050 151,381 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 7,132,242 7,125,711 Accumulated depletion (6,721,529) (6,682,822) ---------- ---------- Net oil and gas properties 410,713 442,889 ---------- ---------- $ 607,763 $ 594,270 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 12,398 $ 19,222 Partners' capital: Managing general partner 4,647 4,444 Limited partners (10,131 interests) 590,718 570,604 ---------- ---------- 595,365 575,048 ---------- ---------- $ 607,763 $ 594,270 =========== ===========
The accompanying notes are an integral part of these financial statements. 10 648 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------------- -------------- --------------- Revenues: Oil and gas $ 881,177 $ 555,781 $ 415,842 Interest 6,917 3,777 4,764 Gain on disposition of assets 31,944 - - --------- -------- --------- 920,038 559,558 420,606 --------- -------- --------- Costs and expenses: Oil and gas production 364,985 341,430 372,460 General and administrative 28,772 16,673 12,476 Depletion 25,907 76,980 260,592 Impairment of oil and gas properties 12,800 28,052 23,593 --------- -------- --------- 432,464 463,135 669,121 --------- -------- --------- Net income (loss) $ 487,574 $ 96,423 $ (248,515) ========== ========= ========== Allocation of net income (loss): Managing general partner $ 4,876 $ 964 $ (2,485) ========== ========= ========== Limited partners $ 482,698 $ 95,459 $ (246,030) ========== ========= ========== Net income (loss) per limited partnership interest $ 47.65 $ 9.42 $ (24.28) ========== ========= ==========
The accompanying notes are an integral part of these financial statements. 11 649 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------------- -------------- --------------- Partners' capital at January 1, 1998 $ 8,487 $ 970,792 $ 979,279 Distributions (964) (95,413) (96,377) Net loss (2,485) (246,030) (248,515) --------- --------- --------- Partners' capital at December 31, 1998 5,038 629,349 634,387 Distributions (1,558) (154,204) (155,762) Net income 964 95,459 96,423 --------- --------- --------- Partners' capital at December 31, 1999 4,444 570,604 575,048 Distributions (4,673) (462,584) (467,257) Net income 4,876 482,698 487,574 --------- --------- --------- Partners' capital at December 31, 2000 $ 4,647 $ 590,718 $ 595,365 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 12 650 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------------- -------------- -------------- Cash flows from operating activities: Net income (loss) $ 487,574 $ 96,423 $ (248,515) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 12,800 28,052 23,593 Depletion 25,907 76,980 260,592 Gain on disposition of assets (31,944) - - Changes in assets and liabilities: Accounts receivable (76,338) (26,964) 32,195 Accounts payable (6,824) 7,385 (9,308) --------- -------- --------- Net cash provided by operating activities 411,175 181,876 58,557 --------- -------- --------- Cash flows from investing activities: Additions to oil and gas properties (6,531) (7,619) (22,830) Proceeds from asset dispositions 31,944 120 - --------- -------- --------- Net cash provided by (used in) investing activities 25,413 (7,499) (22,830) --------- -------- --------- Cash flows used in financing activities: Cash distributions to partners (467,257) (155,762) (96,377) --------- -------- --------- Net increase (decrease) in cash (30,669) 18,615 (60,650) Cash at beginning of year 76,838 58,223 118,873 --------- -------- --------- Cash at end of year $ 46,169 $ 76,838 $ 58,223 ========== ========= ==========
The accompanying notes are an integral part of these financial statements. 13 651 PARKER & PARSLEY 86-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 86-A, Ltd. (the "Partnership") is a limited partnership organized in 1986 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 652 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non- partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environ mental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $12,800, $28,052 and $23,593 related to its proved oil and gas properties during 2000, 1999 and 1998, respectively. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $695,197 less 15 653 than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ------------- -------------- -------------- Net income (loss) per statements of operations $ 487,574 $ 96,423 $ (248,515) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 16,131 66,147 251,615 Impairment of oil and gas properties for financial reporting purposes 12,800 28,052 23,593 Timing difference 67,848 - - Other, net (1,032) (1,773) 2,118 ---------- --------- --------- Net income per Federal income tax returns $ 583,321 $ 188,849 $ 28,811 ========== ========== ==========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Development costs $ 6,531 $ 7,619 $ 22,830 ========== ========= ==========
Capitalized oil and gas properties consist of the following:
2000 1999 ---------------- ---------------- Proved properties: Property acquisition costs $ 264,211 $ 264,211 Completed wells and equipment 6,868,031 6,861,500 ---------- ---------- 7,132,242 7,125,711 Accumulated depletion (6,721,529) (6,682,822) ---------- ---------- Net oil and gas properties $ 410,713 $ 442,889 =========== ===========
16 654 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 167,350 $ 167,820 $ 161,913 Reimbursement of general and administrative expenses $ 24,184 $ 9,436 $ 9,062
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. In addition, Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership ------------- --------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 35 limited partner interests owned by Pioneer USA. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 655
Oil and NGLs Gas (bbls) (mcf) -------------------- ------------------- Net proved reserves at January 1, 1998 315,662 469,065 Revisions (123,571) (148,399) Production (31,472) (49,805) ---------- ---------- Net proved reserves at December 31, 1998 160,619 270,861 Revisions 273,095 545,216 Production (33,226) (62,354) ---------- ---------- Net proved reserves at December 31, 1999 400,488 753,723 Revisions 83,992 171,142 Production (31,785) (56,549) ---------- ---------- Net proved reserves at December 31, 2000 452,695 868,316 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $12.60 per barrel of NGLs and $7.15 per mcf of gas, discounted at 10% was approximately $3,610,000 and undiscounted was $7,252,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year- end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 18 656
For the years ended December 31, ------------------------------------------------- 2000 1999 1998 ---------------- ---------------- --------------- (in thousands) Oil and gas producing activities: Future cash inflows $ 15,459 $ 9,741 $ 1,763 Future production costs (8,207) (5,896) (1,433) ---------- ---------- ---------- 7,252 3,845 330 10% annual discount factor (3,642) (1,727) (89) ---------- ---------- ---------- Standardized measure of discounted future net cash flows $ 3,610 $ 2,118 $ 241 =========== =========== ===========
For the years ended December 31, ------------------------------------------------- 2000 1999 1998 ---------------- ---------------- --------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (516) $ (214) $ (43) Net changes in prices and production costs 1,408 829 (761) Revisions of previous quantity estimates 753 1,942 (147) Accretion of discount 212 24 113 Changes in production rates, timing and other (365) (704) (51) ---------- ----------- ---------- Change in present value of future net revenues 1,492 1,877 (889) ---------- ----------- ---------- Balance, beginning of year 2,118 241 1,130 ---------- ----------- ---------- Balance, end of year $ 3,610 $ 2,118 $ 241 =========== ============ ===========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 51% 48% - Genesis Crude Oil, L.P. - - 62% Western Gas Resources, Inc. 7% 9% 29%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $31,479, which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. 19 657 NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $10,131,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 658 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 45 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts 21 659 Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 660 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated approximately 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 35 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 661 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ------------- ------------- ------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 167,350 $ 167,820 $ 161,913 Reimbursement of general and administrative expenses $ 24,184 $ 9,436 $ 9,062
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 662 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 663 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 86-A, LTD. Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ----------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 28, 2001 -------------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 28, 2001 -------------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001 -------------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 28, 2001 -------------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 28, 2001 -------------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 28, 2001 -------------------------------------- Officer of Pioneer USA Rich Dealy
26 664 PARKER & PARSLEY 86-A, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Amended and Restated Certificate of - Limited Partnership of Parker & Parsley 86-A, Ltd. incorporated by reference to Exhibit 3a of the Partnership's Registration Statement on Form S-1 (Registration No. 33-3353) (hereinafter called the Partnership's Registration Statement) 4(a) Form of Agreement of Limited Partnership of - Parker & Parsley 86-A, Ltd. incorporated by reference to Exhibit A of Amendment No. 1 of the Partnership's Registration Statement 4(b) Form of Subscription Agreement incorporated by reference to Exhibit C of Amendment No. 1 of the Partnership's Registration Statement - 4(b) Power of Attorney incorporated by reference to - an Exhibit of the Partnership's Registration Statement 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement 10(b) Development Program Agreement incorporated - by reference to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement
27 665 PARKER & PARSLEY 86-A, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 410,079 $ 393,746 $ 881,177 $ 555,781 $ 415,842 $ 605,964 $ 843,204 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 290,690 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 12,800 $ 28,052 $ 23,593 $ 496,887 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 154,546 $ 222,919 $ 487,574 $ 96,423 $ (248,515) $ (467,727) $ 741,771 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,545 $ 2,229 $ 4,876 $ 964 $ (2,485) $ (4,677) $ 7,417 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 153,001 $ 220,690 $ 482,698 $ 95,459 $ (246,030) $ (463,050) $ 734,354 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 15.10 $ 21.78 $ 47.65 $ 9.42 $ (24.28) $ (45.71) $ 72.49 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 18.73 $ 20.04 $ 45.66 $ 15.22 $ 9.42 $ 27.44 $ 94.54(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 578,298 $ 616,989 $ 607,763 $ 594,270 $ 646,224 $1,000,424 $1,804,366 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $28.41 in 1996. 666 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 86-B, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 86-B, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 86-B, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 667 PARKER & PARSLEY 86-B, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 17,208 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 27,115 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 3,935 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 230.38 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.70 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 134.43 -- as of December 31, 2000 (c) $ 128.81 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 213.91 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 223.64 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 235 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2036, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 668 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, 2001 Commission File No. 33-3353B PARKER & PARSLEY 86-B, LTD. (Exact name of Registrant as specified in its charter) Texas 75-2140235 --------------------------------------------- --------------------- (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 / / 669 PARKER & PARSLEY 86-B, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000...................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000..................... 4 Statement of Partners' Capital for the six months ended June 30, 2001..................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000............................ 6 Notes to Financial Statements............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K.......................... 11 Signatures................................................ 12
2 670 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 445,146 $ 220,466 Accounts receivable - oil and gas sales 197,873 260,049 ----------- ----------- Total current assets 643,019 480,515 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 11,812,935 11,805,173 Accumulated depletion (10,091,305) (10,032,733) ----------- ----------- Net oil and gas properties 1,721,630 1,772,440 ----------- ----------- $ 2,364,649 $ 2,252,955 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 29,355 $ 15,305 Partners' capital: Managing general partner 22,076 21,100 Limited partners (17,208 interests) 2,313,218 2,216,550 ----------- ----------- 2,335,294 2,237,650 ----------- ----------- $ 2,364,649 $ 2,252,955 =========== ===========
The financial information included as of June 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. 3 671 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 409,078 $ 392,916 $ 847,551 $ 795,048 Interest 3,245 4,323 6,906 7,395 Gain on disposition of assets - 831 - 2,250 -------- -------- -------- -------- 412,323 398,070 854,457 804,693 -------- -------- -------- -------- Costs and expenses: Oil and gas production 185,876 170,553 354,327 339,664 General and administrative 12,273 11,787 25,427 23,851 Depletion 28,886 23,496 58,572 57,494 -------- -------- -------- -------- 227,035 205,836 438,326 421,009 -------- -------- -------- -------- Net income $ 185,288 $ 192,234 $ 416,131 $ 383,684 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,853 $ 1,922 $ 4,161 $ 3,837 ======== ======== ======== ======== Limited partners $ 183,435 $ 190,312 $ 411,970 $ 379,847 ======== ======== ======== ======== Net income per limited partnership interest $ 10.66 $ 11.06 $ 23.94 $ 22.07 ======== ======== ======== ========
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. 4 672 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 21,100 $2,216,550 $2,237,650 Distributions (3,185) (315,302) (318,487) Net income 4,161 411,970 416,131 --------- --------- --------- Balance at June 30, 2001 $ 22,076 $2,313,218 $2,335,294 ========= ========= =========
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. 5 673 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 416,131 $ 383,684 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 58,572 57,494 Gain on disposition of assets - (2,250) Changes in assets and liabilities: Accounts receivable 62,176 (28,686) Accounts payable 14,050 17,359 --------- --------- Net cash provided by operating activities 550,929 427,601 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (7,762) (17,471) Proceeds from asset dispositions - 4,846 --------- --------- Net cash used in investing activities (7,762) (12,625) --------- --------- Cash flows used in financing activities: Cash distributions to partners (318,487) (408,087) --------- --------- Net increase in cash 224,680 6,889 Cash at beginning of period 220,466 206,408 --------- --------- Cash at end of period $ 445,146 $ 213,297 ========= =========
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. 6 674 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 86-B, Ltd. (the "Partnership") is a limited partnership organized in 1986 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 7% to $847,551 for the six months ended June 30, 2001 as compared to $795,048 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 18,401 barrels of oil, 7,150 barrels of natural gas liquids ("NGLs") and 43,243 mcf of gas were 7 675 sold, or 32,758 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 20,591 barrels of oil, 10,406 barrels of NGLs and 41,035 mcf of gas were sold, or 37,836 BOEs. The average price received per barrel of oil increased $.31, or 1%, from $27.57 for the six months ended June 30, 2000 to $27.88 for the same period in 2001. The average price received per barrel of NGLs increased $3.05, or 23%, from $13.43 during the six months ended June 30, 2000 to $16.48 for the same period in 2001. The average price received per mcf of gas increased 135% from $2.13 for the six months ended June 30, 2000 to $5.01 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 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 six months ended June 30, 2001. A gain on disposition of assets of $2,250 was received during the six months ended June 30, 2000 due to equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $438,326 for the six months ended June 30, 2001 as compared to $421,009 for the same period in 2000, an increase of $17,317, or 4%. This increase was due to increases in production costs, general and administrative expenses ("G&A") and depletion. Production costs were $354,327 for the six months ended June 30, 2001 and $339,664 for the same period in 2000, resulting in a $14,663 increase, or 4%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 7%, from $23,851 for the six months ended June 30, 2000 to $25,427 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $58,572 for the six months ended June 30, 2001 as compared to $57,494 for the same period in 2000, an increase of $1,078, or 2%. This increase was due to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a reduction in the Partnership's net depletable basis from charges taken 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") during the fourth quarter of 2000 and a decline in oil production of 2,190 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 4% to $409,078 for the three months ended June 30, 2001 as compared to $392,916 for the same period in 2000. 8 676 The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices received for oil. For the three months ended June 30, 2001, 9,425 barrels of oil, 4,390 barrels of NGLs and 23,194 mcf of gas were sold, or 17,681 BOEs. For the three months ended June 30, 2000, 9,770 barrels of oil, 5,347 barrels of NGLs and 20,600 mcf of gas were sold, or 18,550 BOEs. The average price received per barrel of oil decreased $.68, or 2%, from $27.55 for the three months ended June 30, 2000 to $26.87 for the same period in 2001. The average price received per barrel of NGLs increased $1.31, or 10%, from $13.48 during the three months ended June 30, 2000 to $14.79 for the same period in 2001. The average price received per mcf of gas increased 56% from $2.51 during the three months ended June 30, 2000 to $3.92 for the same period in 2001. A gain on disposition of assets of $831 was received during the three months ended June 30, 2000 due to equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $227,035 for the three months ended June 30, 2001 as compared to $205,836 for the same period in 2000, an increase of $21,199, or 10%. This increase was due to increases in production costs, depletion and G&A. Production costs were $185,876 for the three months ended June 30, 2001 and $170,553 for the same period in 2000 resulting in a $15,323 increase, or 9%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production. During this period, G&A increased 4%, from $11,787 for the three months ended June 30, 2000 to $12,273 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $28,886 for the three months ended June 30, 2001 as compared to $23,496 for the same period in 2000, an increase of $5,390, or 23%. This increase was due to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by 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 345 barrels for the three months ended June 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 $123,328 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was primarily attributable to an increase of $52,014 in oil and gas sale receipts and reductions in working capital of $87,553, offset by increases in production costs of $14,663 and G&A expenses of $1,576. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $155,662 to oil and gas receipts, offset by $103,648 resulting from the decline in production during 2001 as compared to the 9 677 same period in 2000. The increase in production costs was primarily due to additional well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for upgrades of oil and gas equipment on active properties. Proceeds from disposition of assets of $4,846 recognized during the six months ended June 30, 2000 consisted of $2,250 from equipment credits on one fully depleted well and $2,596 from equipment credits on an active property. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $318,487, of which $3,185 was distributed to the managing general partner and $315,302 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $408,087, of which $4,081 was distributed to the managing general partner and $404,006 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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. 10 678 The limited partners are urged to read the proxy statement/prospectus of Pioneer filed with the Securities and Exchange Commission, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 679 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) SIGNATURES 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 86-B, LTD. By: Pioneer Natural Resources USA, Inc. Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 680 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-3353B PARKER & PARSLEY 86-B, LTD. (Exact name of Registrant as specified in its charter)
TEXAS 75-2140235 ----------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $17,080,000. As of March 8, 2001, the number of outstanding limited partnership interests was 17,208. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 681 PART I ITEM 1. BUSINESS Parker & Parsley 86-B, Ltd. (the "Partnership") is a limited partnership organized in 1986 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 17,208 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 36% and 16% were attributable to sales made to Plains Marketing, L.P. and Mobil Oil Corporation, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 682 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 56 oil and gas wells. At December 31, 2000, 43 wells were producing. Nine wells and interests in two abandoned wells were sold and two wells were plugged and abandoned. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 683 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 17,208 outstanding limited partnership interests held of record by 1,409 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $923,558 and $357,887, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 --------------- --------------- --------------- --------------- --------------- Operating results: ----------------- Oil and gas sales $ 1,756,242 $ 1,056,533 $ 928,899 $ 1,369,807 $ 1,700,251 ========== =========== ========== =========== =========== Gain on litigation settlement, net $ - $ - $ - $ - $ 565,756 ========== =========== ========== =========== =========== Impairment of oil and gas properties $ 13,279 $ - $ 509,585 $ 561,432 $ 4,960 ========== =========== ========== =========== =========== Net income (loss) $ 933,292 $ 246,008 $ (807,041) $ (158,796) $ 1,229,639 ========== =========== ========== =========== =========== Allocation of net income (loss): Managing general partner $ 9,333 $ 2,460 $ (8,070) $ (1,587) $ 12,296 ========== =========== ========== =========== =========== Limited partners $ 923,959 $ 243,548 $ (798,971) $ (157,209) $ 1,217,343 ========== =========== ========== =========== =========== Limited partners' net income (loss) per limited partnership interest $ 53.69 $ 14.15 $ (46.43) $ (9.14) $ 70.74 ========== =========== ========== =========== =========== Limited partners' cash distributions per limited partnership interest $ 53.67 $ 20.80 $ 18.70 $ 46.77 $ 86.49 (a) ========== =========== ========== =========== =========== At year end: ----------- Identifiable assets $ 2,252,955 $ 2,266,438 $ 2,363,955 $ 3,520,172 $ 4,548,338 ========== =========== ========== =========== ===========
--------------- (a) Including litigation settlement per limited partnership interest of $32.55 in 1996. 4 684 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 66% to $1,756,242 for 2000 as compared to $1,056,533 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 41,276 barrels of oil, 21,061 barrels of natural gas liquids ("NGLs") and 79,859 mcf of gas were sold, or 75,647 barrel of oil equivalents ("BOEs"). In 1999, 40,490 barrels of oil, 22,642 barrels of NGLs and 86,726 mcf of gas were sold, or 77,586 BOEs. 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 increased $12.27, or 71%, from $17.18 in 1999 to $29.45 in 2000. The average price received per barrel of NGLs increased $5.61, or 60%, from $9.39 in 1999 to $15.00 in 2000. The average price received per mcf of gas increased 65% from $1.71 in 1999 to $2.82 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $21,074 was received during 2000 due to the sale of equipment on one plugged and abandoned well. Abandoned property costs of $12,161 were also incurred during 2000 to plug and abandon this well. Total costs and expenses increased in 2000 to $861,600 as compared to $821,102 in 1999, an increase of $40,498, or 5%. The increase was due to increases in production costs, general and administrative expenses ("G&A"), the impairment of oil and gas properties and abandoned property costs, offset by a decline in depletion. Production costs were $670,780 in 2000 and $611,991 in 1999, resulting in an increase of $58,789, or 10%. This increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 66% from $31,696 in 1999 to $52,687 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $44,975 in 2000 and $19,909 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated 5 685 to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $13,279 related to its oil and gas properties during 2000. Depletion was $112,693 in 2000 as compared to $177,415 in 1999, representing a decrease of $64,722, or 36%. This decrease was primarily due to a 65,045 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 14% to $1,056,533 from $928,899 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 40,490 barrels of oil, 22,642 barrels of NGLs and 86,726 mcf of gas were sold, or 77,586 BOEs. In 1998, 47,107 barrels of oil, 23,292 barrels of NGLs and 97,715 mcf of gas were sold, or 86,685 BOEs. The average price received per barrel of oil increased $4.10, or 31%, from $13.08 in 1998 to $17.18 in 1999. The average price received per barrel of NGLs increased $2.59, or 38%, from $6.80 in 1998 to $9.39 in 1999. The average price received per mcf of gas increased 8% from $1.58 in 1998 to $1.71 in 1999. A gain on disposition of assets of $6,371 was recognized during 1998 from the sale of equipment on one well plugged and abandoned during 1998. Abandoned property costs of $20,389 were also incurred during 1998 to plug and abandon this well. Total costs and expenses decreased in 1999 to $821,102 as compared to $1,755,278 in 1998, a decrease of $934,176, or 53%. The decrease was due to declines in the impairment of oil and gas properties, depletion, production costs and abandoned property costs, offset by an increase in G&A. Production costs were $611,991 in 1999 and $662,691 in 1998, resulting in a $50,700 decrease, or 8%. This decrease was due to lower well maintenance costs and ad valorem taxes, offset by an increase in workover costs incurred to stimulate well production. During this period, G&A increased 14% from $27,867 in 1998 to $31,696 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $19,909 in 1999 and $21,984 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $509,585 related to its oil and gas properties during 1998. 6 686 Depletion was $177,415 in 1999 compared to $534,746 in 1998. This represented a decrease of $357,331, or 67%. This decrease was the result of a combination of factors that included an increase in proved reserves of 343,529 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 6,617 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $561,909 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $706,708, offset by increases in production costs paid of $58,789, G&A expenses paid of $20,991, abandoned costs paid of $12,161 and working capital of $52,858. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $726,611 to oil and gas receipts, offset by $19,903 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities during 2000 and 1999 were related to expenditures for oil and gas equipment upgrades on active properties. Proceeds from disposition of assets of $23,670 was recognized during 2000. The gain was comprised of $21,074 received from the sale of equipment on one well plugged and abandoned during the current period and $2,596 from equipment credits received on one active well. Proceeds of $8,980 in 1999 were from equipment credits received on active properties. 7 687 Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $932,887, of which $9,329 was distributed to the managing general partner and $923,558 to the limited partners. In 1999, cash distributions to the partners were $361,502, of which $3,615 was distributed to the managing general partner and $357,887 to the limited partners. 8 688 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 86-B, Ltd: Independent Auditors' Report.......................................................................... 10 Balance Sheets as of December 31, 2000 and 1999....................................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................................. 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998.................................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................................. 14 Notes to Financial Statements......................................................................... 15
9 689 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 86-B, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 86-B, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 86-B, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 10 690 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------------------ ------------------ ASSETS ------ Current assets: Cash $ 220,466 $ 206,408 Accounts receivable - oil and gas sales 260,049 179,740 ------------ ----------- Total current assets 480,515 386,148 ------------ ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 11,805,173 12,044,833 Accumulated depletion (10,032,733) (10,164,543) ------------ ----------- Net oil and gas properties 1,772,440 1,880,290 ------------ ----------- $ 2,252,955 $ 2,266,438 ============= ============ LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 15,305 $ 29,193 Partners' capital: Managing general partner 21,100 21,096 Limited partners (17,208 interests) 2,216,550 2,216,149 ------------ ----------- 2,237,650 2,237,245 ------------ ----------- $ 2,252,955 $ 2,266,438 ============= ============
The accompanying notes are an integral part of these financial statements. 11 691 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ---------------- ---------------- ---------------- Revenues: Oil and gas $ 1,756,242 $ 1,056,533 $ 928,899 Interest 17,576 10,577 12,967 Gain on disposition of assets 21,074 - 6,371 ---------- ----------- ---------- 1,794,892 1,067,110 948,237 ---------- ----------- ---------- Costs and expenses: Oil and gas production 670,780 611,991 662,691 General and administrative 52,687 31,696 27,867 Impairment of oil and gas properties 13,279 - 509,585 Depletion 112,693 177,415 534,746 Abandoned property 12,161 - 20,389 ---------- ----------- ---------- 861,600 821,102 1,755,278 ---------- ----------- ---------- Net income (loss) $ 933,292 $ 246,008 $ (807,041) =========== ============ =========== Allocation of net income (loss): Managing general partner $ 9,333 $ 2,460 $ (8,070) =========== ============ =========== Limited partners $ 923,959 $ 243,548 $ (798,971) =========== ============ =========== Net income (loss) per limited partnership interest $ 53.69 $ 14.15 $ (46.43) =========== ============ ===========
The accompanying notes are an integral part of these financial statements. 12 692 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------------- --------------- ---------------- Partners' capital at January 1, 1998 $ 33,572 $ 3,451,264 $ 3,484,836 Distributions (3,251) (321,805) (325,056) Net loss (8,070) (798,971) (807,041) ---------- ---------- ---------- Partners' capital at December 31, 1998 22,251 2,330,488 2,352,739 Distributions (3,615) (357,887) (361,502) Net income 2,460 243,548 246,008 ---------- ---------- ---------- Partners' capital at December 31, 1999 21,096 2,216,149 2,237,245 Distributions (9,329) (923,558) (932,887) Net income 9,333 923,959 933,292 ---------- ---------- ---------- Partners' capital at December 31, 2000 $ 21,100 $ 2,216,550 $ 2,237,650 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 13 693 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------------- -------------- -------------- Cash flows from operating activities: Net income (loss) $ 933,292 $ 246,008 $ (807,041) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 13,279 - 509,585 Depletion 112,693 177,415 534,746 Gain on disposition of assets (21,074) - (6,371) Changes in assets and liabilities: Accounts receivable (80,309) (59,316) 47,751 Accounts payable (13,888) 17,977 (24,120) --------- -------- --------- Net cash provided by operating activities 943,993 382,084 254,550 --------- -------- --------- Cash flows from investing activities: Additions to oil and gas properties (20,718) (8,474) (19,495) Proceeds from disposition of assets 23,670 8,980 15,526 --------- -------- --------- Net cash provided by (used in) investing activities 2,952 506 (3,969) --------- -------- --------- Cash flows used in financing activities: Cash distributions to partners (932,887) (361,502) (325,056) --------- -------- --------- Net increase (decrease) in cash 14,058 21,088 (74,475) Cash at beginning of year 206,408 185,320 259,795 --------- -------- --------- Cash at end of year $ 220,466 $ 206,408 $ 185,320 ========== ========= ==========
The accompanying notes are an integral part of these financial statements. 14 694 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 86-B, Ltd. (the "Partnership") is a limited partnership organized in 1986 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the 15 695 respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non- partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $13,279 and $509,585 related to its proved oil and gas properties during 2000 and 1998, respectively. 16 696 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $38,785 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Net income (loss) per statements of operations $ 933,292 $ 246,008 $ (807,041) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 104,139 168,298 525,430 Impairment of oil and gas properties for financial reporting purposes 13,279 - 509,585 Intangible development costs capitalized for financial reporting purposes and expensed for tax reporting purposes (13,305) - - Other, net (142) 11,789 6,831 --------- --------- --------- Net income per Federal income tax returns $ 1,037,263 $ 426,095 $ 234,805 ========== ========== ==========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Development costs $ 20,718 $ 8,474 $ 19,495 =========== ========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999 ------------------ ------------------ Proved properties: Property acquisition costs $ 439,613 $ 444,922 Completed wells and equipment 11,365,560 11,599,911 ------------ ------------ 11,805,173 12,044,833 Accumulated depletion (10,032,733) (10,164,543) ------------ ------------ Net oil and gas properties $ 1,772,440 $ 1,880,290 ============= =============
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 17 697
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 298,127 $ 298,479 $ 296,383 Reimbursement of general and administrative expenses $ 44,975 $ 19,909 $ 21,984
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. In addition, Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership -------------- --------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 128 limited partner interests owned by Pioneer USA. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 18 698
Oil and NGLs Gas (bbls) (mcf) -------------------- ------------------- Net proved reserves at January 1, 1998 940,047 1,239,206 Revisions (401,595) (457,837) Production (70,399) (97,715) ----------- ---------- Net proved reserves at December 31, 1998 468,053 683,654 Revisions 550,528 841,323 Production (63,132) (86,726) ----------- ---------- Net proved reserves at December 31, 1999 955,449 1,438,251 Revisions 42,519 (145,295) Production (62,337) (79,859) ----------- ---------- Net proved reserves at December 31, 2000 935,631 1,213,097 =========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.61 per barrel of NGLs and $7.82 per mcf of gas, discounted at 10% was approximately $7,100,000 and undiscounted was $14,263,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 19 699
For the years ended December 31, ------------------------------------------------- 2000 1999 1998 ---------------- ---------------- --------------- (in thousands) Oil and gas producing activities: Future cash inflows $ 30,354 $ 23,606 $ 5,045 Future production costs (16,091) (13,697) (3,839) ---------- ---------- ---------- 14,263 9,909 1,206 10% annual discount factor (7,163) (4,671) (387) ---------- ---------- ---------- Standardized measure of discounted future net cash flows $ 7,100 $ 5,238 $ 819 =========== =========== ===========
For the years ended December 31, ------------------------------------------------- 2000 1999 1998 ---------------- ---------------- --------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,085) $ (445) $ (266) Net changes in prices and production costs 2,757 2,398 (2,377) Revisions of previous quantity estimates 121 3,891 (547) Accretion of discount 524 82 377 Changes in production rates, timing and other (455) (1,507) (140) ---------- ----------- ---------- Change in present value of future net revenues 1,862 4,419 (2,953) ---------- ----------- ---------- Balance, beginning of year 5,238 819 3,772 ---------- ----------- ---------- Balance, end of year $ 7,100 $ 5,238 $ 819 =========== ============ ===========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 36% 35% - Genesis Crude Oil, L.P. - - 41% Western Gas Resources, Inc. 2% 4% 17% Mobil Oil Corporation 16% 15% 15% Texaco Trading & Transportation 4% 8% 10%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and Mobil Oil Corporation were $54,631 and $21,954, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating 20 700 and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $17,208,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 701 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 22 702 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 23 703 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated approximately 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Note 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 128 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 24 704
2000 1999 1998 ------------- ------------- ------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 298,127 $ 298,479 $ 296,383 Reimbursement of general and administrative expenses $ 44,975 $ 19,909 $ 21,984
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 25 705 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 26 706 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 86-B, LTD. Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------ Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 29, 2001 -------------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001 -------------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001 -------------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 29, 2001 -------------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 29, 2001 -------------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 29, 2001 -------------------------------------- Officer of Pioneer USA Rich Dealy
27 707 PARKER & PARSLEY 86-B, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Amended and Restated Certificate of - Limited Partnership of Parker & Parsley 86-B, Ltd. incorporated by reference to Exhibit 3a of the Partnership's Registration Statement on Form S-1 (Registration No. 33-3353) (hereinafter called the Partnership's Registration Statement) 4(a) Form of Agreement of Limited Partnership of - Parker & Parsley 86-B, Ltd. incorporated by reference to Exhibit A of Amendment No. 1 of the Partnership's Registration Statement 4(b) Form of Subscription Agreement incorporated by reference to Exhibit C of Amendment No. 1 of the Partnership's Registration Statement - 4(b) Power of Attorney incorporated by reference to - an Exhibit of the Partnership's Registration Statement 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement 10(b) Development Program Agreement incorporated - by reference to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement
28 708 PARKER & PARSLEY 86-B, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 847,551 $ 795,048 $1,756,242 $1,056,533 $ 928,899 $1,369,807 $1,700,251 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 565,756 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 13,279 $ -- $ 509,585 $ 561,432 $ 4,960 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 416,131 $ 383,684 $ 933,292 $ 246,008 $ (807,041) $ (158,796) $1,229,639 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 4,161 $ 3,837 $ 9,333 $ 2,460 $ (8,070) $ (1,587) $ 12,296 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 411,970 $ 379,847 $ 923,959 $ 243,548 $ (798,971) $ (157,209) $1,217,343 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 23.94 $ 22.07 $ 53.69 $ 14.15 $ (46.43) $ (9.14) $ 70.74 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 18.32 $ 23.48 $ 53.67 $ 20.80 $ 18.70 $ 46.77 $ 86.49(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total ended $2,364,649 $2,259,394 $2,252,955 $2,266,438 $2,363,955 $3,520,172 $4,548,338 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $32.55 in 1996. 709 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 86-C, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 86-C, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 86-C, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 710 PARKER & PARSLEY 86-C, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 19,317 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 28,723 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 3,185 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 165.38 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.01 times past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 104.90 -- as of December 31, 2000(c) $ 98.36 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 151.00 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 160.54 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 225
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2036, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 711 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, 2001 Commission File No. 33-3353C PARKER & PARSLEY 86-C, LTD. (Exact name of Registrant as specified in its charter) Texas 75-2142283 -------------------------------------------- --------------------- (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 / / 712 PARKER & PARSLEY 86-C, LTD. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000........................... 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12 2 713 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 441,080 $ 161,347 Accounts receivable - oil and gas sales 213,975 296,462 ----------- ----------- Total current assets 655,055 457,809 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 14,602,482 14,598,140 Accumulated depletion (13,168,721) (13,107,930) ----------- ----------- Net oil and gas properties 1,433,761 1,490,210 ----------- ----------- $ 2,088,816 $ 1,948,019 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 43,231 $ 30,112 Partners' capital: Managing general partner 19,148 17,871 Limited partners (19,317 interests) 2,026,437 1,900,036 ----------- ----------- 2,045,585 1,917,907 ----------- ----------- $ 2,088,816 $ 1,948,019 =========== ===========
The financial information included as of June 30, 2001 been prepared by the managing general partner without audit by independent public accountants. The accompanying notes are an integral part of these financial statements. 3 714 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 422,897 $ 439,126 $ 955,101 $ 856,273 Interest 3,190 3,246 6,452 5,700 -------- -------- -------- -------- 426,087 442,372 961,553 861,973 -------- -------- -------- -------- Costs and expenses: Oil and gas production 215,988 231,517 433,153 448,472 General and administrative 12,687 13,174 28,653 25,688 Depletion 29,568 36,749 60,791 79,906 -------- -------- -------- -------- 258,243 281,440 522,597 554,066 -------- -------- -------- -------- Net income $ 167,844 $ 160,932 $ 438,956 $ 307,907 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,679 $ 1,609 $ 4,390 $ 3,079 ======== ======== ======== ======== Limited partners $ 166,165 $ 159,323 $ 434,566 $ 304,828 ======== ======== ======== ======== Net income per limited partnership interest $ 8.61 $ 8.25 $ 22.50 $ 15.78 ======== ======== ======== ========
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. 4 715 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 17,871 $1,900,036 $1,917,907 Distributions (3,113) (308,165) (311,278) Net income 4,390 434,566 438,956 --------- --------- --------- Balance at June 30, 2001 $ 19,148 $2,026,437 $2,045,585 ========= ========= =========
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. 5 716 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 438,956 $ 307,907 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 60,791 79,906 Changes in assets and liabilities: Accounts receivable 82,487 (29,385) Accounts payable 13,119 14,845 --------- --------- Net cash provided by operating activities 595,353 373,273 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (4,653) (11,614) Proceeds from asset dispositions 311 - --------- --------- Net cash used in investing activities (4,342) (11,614) --------- --------- Cash flows used in financing activities: Cash distributions to partners (311,278) (351,708) --------- --------- Net increase in cash 279,733 9,951 Cash at beginning of period 161,347 142,687 --------- --------- Cash at end of period $ 441,080 $ 152,638 ========= =========
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. 6 717 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 86-C, Ltd. (the "Partnership") is a limited partnership organized in 1986 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 June 30, 2001 and for the three and six months ended June 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 of operations are not necessarily indicative of results for a full year. Certain reclassifications may have been made to the June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 12% to $955,101 for the six months ended June 30, 2001 as compared to $856,273 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices received for oil. For the six months ended June 30, 2001, 19,403 barrels of oil, 10,669 7 718 barrels of natural gas liquids ("NGLs") and 54,393 mcf of gas were sold, or 39,138 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 21,638 barrels of oil, 12,002 barrels of NGLs and 45,739 mcf of gas were sold, or 41,263 BOEs. The average price received per barrel of oil decreased $.22, or 1%, from $27.64 for the six months ended June 30, 2000 to $27.42 for the same period in 2001. The average price received per barrel of NGLs increased $2.26, or 16%, from $13.72 during the six months ended June 30, 2000 to $15.98 for the same period in 2001. The average price received per mcf of gas increased 126% from $2.05 during the six months ended June 30, 2000 to $4.64 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses decreased to $522,597 for the six months ended June 30, 2001 as compared to $554,066 for the same period in 2000, a decrease of $31,469, or 6%. This decrease was due to declines in depletion and production costs, offset by an increase in general and administrative expenses ("G&A"). Production costs were $433,153 for the six months ended June 30, 2001 and $448,472 for the same period in 2000 resulting in a $15,319 decrease, or 3%. This decrease was due to lower well maintenance and workover costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 12% from $25,688 for the six months ended June 30, 2000 to $28,653 for the same period in 2001, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $60,791 for the six months ended June 30, 2001 as compared to $79,906 for the same period in 2000, a decline of $19,115, or 24%. This decrease was due to upward revisions in proved reserves on three significant wells during the period ended June 30, 2001 and a decrease in oil production of 2,235 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 4% to $422,897 for the three months ended June 30, 2001 as compared to $439,126 for the same period in 2000. The decrease in revenues resulted from a decrease in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 9,459 barrels of oil, 5,538 barrels of NGLs and 25,535 mcf of gas were sold, or 19,253 BOEs. For the 8 719 three months ended June 30, 2000, 10,480 barrels of oil, 6,550 barrels of NGLs and 23,989 mcf of gas were sold, or 21,028 BOEs. The average price received per barrel of oil decreased $.86, or 3%, from $27.72 for the three months ended June 30, 2000 to $26.86 for the same period in 2001. The average price received per barrel of NGLs increased $.24, or 2%, from $13.79 during the three months ended June 30, 2000 to $14.03 for the same period in 2001. The average price received per mcf of gas increased 47% from $2.43 during the three months ended June 30, 2000 to $3.57 for the same period in 2001. Costs and Expenses: Total costs and expenses decreased to $258,243 for the three months ended June 30, 2001 as compared to $281,440 for the same period in 2000, a decrease of $23,197, or 8%. This decrease was due to declines in production costs, depletion and G&A. Production costs were $215,988 for the three months ended June 30, 2001 and $231,517 for the same period in 2000 resulting in a $15,529 decrease, or 7%. This decrease was primarily due to lower workover and well maintenance costs. During this period, G&A decreased 4% from $13,174 for the three months ended June 30, 2000 to $12,687 for the same period in 2001, primarily due to a decrease in audit and tax fees Depletion was $29,568 for the three months ended June 30, 2001 as compared to $36,749 for the same period in 2000, a decrease of $7,181, or 20%. This decrease was primarily due to upward revisions to proved reserves on three significant wells during the period ended June 30, 2001 and a decrease in oil production of 1,021 barrels for the three months ended June 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 $222,080 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase of $99,580 in oil and gas receipts and reductions of $110,146 in working capital and $15,319 in production costs, offset by an increase in G&A expenses of $2,965. The increase in oil and gas receipts resulted from the increase in gas and NGL prices of $145,824 during 2001, offset by a decline of $42,415 in production and a $3,829 decline resulting from lower oil prices as compared to the same period in 2000. The decrease in production costs was primarily due to lower well maintenance and workover costs. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for equipment upgrades on active properties. 9 720 Proceeds from disposition of assets of $311 recognized during the six months ended June 30, 2001 were due to equipment credits received on an active property. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $311,278, of which $3,113 was distributed to the managing general partner and $308,165 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $351,708, of which $3,517 was distributed to the managing general partner and $348,191 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 721 ---------- (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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 722 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) SIGNATURES 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 86-C, LTD. By: Pioneer Natural Resources USA, Inc. Managing General Partner Dated: August 8, 2001 By: /s/ Rich Dealy ------------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 723 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-3353C PARKER & PARSLEY 86-C, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-2142283 -------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------ (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $19,257,000. As of March 8, 2001, the number of outstanding limited partnership interests was 19,317. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 724 PART I ITEM 1. BUSINESS Parker & Parsley 86-C, Ltd. (the "Partnership") is a limited partnership organized in 1986 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 19,317 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 37% and 15% were attributable to sales made to Plains Marketing, L.P. and TEPPCO Crude Oil LLC, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 725 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 60 productive oil and gas wells. Four wells were sold and three wells were abandoned due to uneconomical operations. At December 31, 2000, 53 wells were producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 726 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 19,317 outstanding limited partnership interests held of record by 1,332 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $821,264 and $236,960, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ---------- --------- --------- --------- --------- Operating results: ------------------ Oil and gas sales $1,865,405 $1,067,096 $ 973,632 $1,484,170 $1,750,717 ========= ========= ========= ========= ========= Gain on litigation settlement, net $ - $ - $ - $ - $ 704,864 ========= ========= ========= ========= ========= Impairment of oil and gas properties $ - $ 26,652 $ 277,277 $ 895,701 $ 132,778 ========= ========= ========= ========= ========= Net income (loss) $ 828,383 $ 105,421 $ (423,942) $ (577,071) $1,142,509 ========= ========= ========= ========= ========= Allocation of net income (loss): Managing general partner $ 8,284 $ 1,054 $ (4,240) $ (5,770) $ 11,425 ========= ========= ========= ========= ========= Limited partners $ 820,099 $ 104,367 $ (419,702) $ (571,301) $1,131,084 ========= ========= ========= ========= ========= Limited partners' net income (loss) per limited partnership interest $ 42.45 $ 5.40 $ (21.73) $ (29.58) $ 58.55 ========= ========= ========= ========= ========= Limited partners' cash distributions per limited limited partnership interest $ 42.52 $ 12.27 $ 15.20 $ 37.84 $ 69.40(a) ========= ========= ========= ========= ========= At year end: ------------ Identifiable assets $1,948,019 $1,958,255 $2,071,111 $2,820,637 $4,193,447 ========= ========= ========= ========= ========= ---------------
(a) Including litigation settlement per limited partnership interest of $36.12 in 1996. 4 727 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 75% to $1,865,405 for 2000 as compared to $1,067,096 in 1999. The increase in revenues resulted from higher average prices received, offset by a slight decline in production. In 2000, 41,783 barrels of oil, 24,546 barrels of natural gas liquids ("NGLs") and 95,610 mcf of gas were sold, or 82,264 barrel of oil equivalents ("BOEs"). In 1999, 37,899 barrels of oil, 26,995 barrels of NGLs and 105,081 mcf of gas were sold, or 82,408 BOEs. 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 increased $12.25, or 71%, from $17.18 in 1999 to $29.43 in 2000. The average price received per barrel of NGLs increased $5.79, or 62%, from $9.27 in 1999 to $15.06 in 2000. The average price received per mcf of gas increased 76% from $1.58 in 1999 to $2.78 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $1,051,119 as compared to $969,444 in 1999, an increase of $81,675, or 8%. The increase was due to increases in production costs and general and administrative ("G&A") expenses, offset by declines in depletion and the impairment of oil and gas properties. Production costs were $848,089 in 2000 and $713,921 in 1999, resulting in an increase of $134,168, or 19%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 75% from $32,012 in 1999 to $55,962 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $46,688 in 2000 and $17,953 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 728 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $26,652 related to its oil and gas properties during 1999. Depletion was $147,068 in 2000 compared to $196,859 in 1999, representing a decrease of $49,791, or 25%. This decrease was primarily due to a 158,291 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999, offset by an increase in oil production of 3,884 barrels for the period ended December 31, 2000 compared to the same period in 1999. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 10% to $1,067,096 from $973,632 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 37,899 barrels of oil, 26,995 barrels of NGLs and 105,081 mcf of gas were sold, or 82,408 BOEs. In 1998, 44,016 barrels of oil, 30,658 barrels of NGLs and 129,149 mcf of gas were sold, or 96,199 BOEs. The average price received per barrel of oil increased $3.92, or 30%, from $13.26 in 1998 to $17.18 in 1999. The average price received per barrel of NGL's increased $2.81, or 43%, from $6.46 in 1998 to $9.27 in 1999. The average price received per mcf of gas increased 6% from $1.49 in 1998 to $1.58 in 1999. Total costs and expenses decreased in 1999 to $969,444 as compared to $1,406,971 in 1998, a decrease of $437,527, or 31%. The decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $713,921 in 1999 and $737,587 in 1998, resulting in a $23,666 decrease, or 3%. The decrease was due to declines in well maintenance costs and ad valorem taxes. During this period, G&A increased 10% from $29,209 in 1998 to $32,012 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $17,953 in 1999 and $21,776 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $26,652 and $277,277 related to its oil and gas properties during 1999 and 1998, respectively. Depletion was $196,859 in 1999 compared to $362,898 in 1998. This represented a decrease of $166,039, or 46%. This decrease was primarily due to an increase in proved reserves of 291,530 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 6 729 1998 and a decline in oil production of 6,117 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $596,449 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $804,637, offset by increases in production costs paid of $134,168, G&A expenses paid of $23,950 and working capital of $50,070. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $753,537 to oil and gas receipts and an increase of $51,100 resulting from the increase in oil production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 were related to expenditures for oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $847 were recognized during 1999 from equipment credits received on active properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $829,560, of which $8,296 was distributed to the managing general partner and $821,264 to the limited partners. In 1999, cash distributions to the partners were $239,353, of which $2,393 was distributed to the managing general partner and $236,960 to the limited partners. 7 730 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS Page Financial Statements of Parker & Parsley 86-C, Ltd: Independent Auditors' Report......................................................... 10 Balance Sheets as of December 31, 2000 and 1999...................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 14 Notes to Financial Statements........................................................ 15
8 731 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 86-C, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 86-C, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 86-C, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 732 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ---------- ASSETS ------ Current assets: Cash $ 161,347 $ 142,687 Accounts receivable - oil and gas sales 296,462 194,380 ---------- ---------- Total current assets 457,809 337,067 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 14,598,140 14,582,050 Accumulated depletion (13,107,930) (12,960,862) ---------- ---------- Net oil and gas properties 1,490,210 1,621,188 ---------- ---------- $ 1,948,019 $ 1,958,255 ========== ========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 30,112 $ 39,171 Partners' capital: Managing general partner 17,871 17,883 Limited partners (19,317 interests) 1,900,036 1,901,201 ---------- ---------- 1,917,907 1,919,084 ---------- ---------- $ 1,948,019 $ 1,958,255 ========== ==========
The accompanying notes are an integral part of these financial statements. 10 733 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ---------- ---------- --------- Revenues: Oil and gas $1,865,405 $1,067,096 $ 973,632 Interest 14,097 7,769 9,397 --------- --------- --------- 1,879,502 1,074,865 983,029 --------- --------- --------- Costs and expenses: Oil and gas production 848,089 713,921 737,587 General and administrative 55,962 32,012 29,209 Impairment of oil and gas properties - 26,652 277,277 Depletion 147,068 196,859 362,898 --------- --------- --------- 1,051,119 969,444 1,406,971 --------- --------- --------- Net income (loss) $ 828,383 $ 105,421 $ (423,942) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 8,284 $ 1,054 $ (4,240) ========= ========= ========= Limited partners $ 820,099 $ 104,367 $ (419,702) ========= ========= ========= Net income (loss) per limited partnership interest $ 42.45 $ 5.40 $ (21.73) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 11 734 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------- --------- --------- Partners' capital at January 1, 1998 $ 26,428 $2,747,103 $2,773,531 Distributions (2,966) (293,607) (296,573) Net loss (4,240) (419,702) (423,942) -------- --------- --------- Partners' capital at December 31, 1998 19,222 2,033,794 2,053,016 Distributions (2,393) (236,960) (239,353) Net income 1,054 104,367 105,421 -------- --------- --------- Partners' capital at December 31, 1999 17,883 1,901,201 1,919,084 Distributions (8,296) (821,264) (829,560) Net income 8,284 820,099 828,383 -------- --------- --------- Partners' capital at December 31, 2000 $ 17,871 $1,900,036 $1,917,907 ======== ========= =========
The accompanying notes are an integral part of these financial statements. 12 735 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- -------- ------- Cash flows from operating activities: Net income (loss) $ 828,383 $ 105,421 $(423,942) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - 26,652 277,277 Depletion 147,068 196,859 362,898 Changes in assets and liabilities: Accounts receivable (102,082) (82,147) 91,550 Accounts payable (9,059) 21,076 (29,011) -------- -------- -------- Net cash provided by operating activities 864,310 267,861 278,772 -------- -------- -------- Cash flows from investing activities: Additions to oil and gas properties (16,090) (13,291) (19,770) Proceeds from asset dispositions - 847 626 -------- -------- -------- Net cash used in investing activities (16,090) (12,444) (19,144) -------- -------- -------- Cash flows used in financing activities: Cash distributions to partners (829,560) (239,353) (296,573) -------- -------- -------- Net increase (decrease) in cash 18,660 16,064 (36,945) Cash at beginning of year 142,687 126,623 163,568 -------- -------- -------- Cash at end of year $ 161,347 $ 142,687 $ 126,623 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 13 736 PARKER & PARSLEY 86-C, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 86-C, Ltd. (the "Partnership") is a limited partnership organized in 1986 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 737 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions $26,652 and $277,277 related to its proved oil and gas properties during 1999 and 1998, respectively. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $533,255 less than the tax basis at December 31, 2000. 15 738 The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------- -------- -------- Net income (loss) per statements of operations $ 828,383 $ 105,421 $(423,942) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 132,379 182,068 348,153 Impairment of oil and gas properties for financial reporting purposes - 26,652 277,277 Salvage income - - 431 Other, net (2,097) (2,839) 4,014 -------- -------- -------- Net income per Federal income tax returns $ 958,665 $ 311,302 $ 205,933 ======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- -------- -------- Development costs $ 16,090 $ 13,291 $ 19,770 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ---------- ---------- Proved properties: Property acquisition costs $ 645,990 $ 645,990 Completed wells and equipment 13,952,150 13,936,060 ---------- ---------- 14,598,140 14,582,050 Accumulated depletion (13,107,930) (12,960,862) ----------- ----------- Net oil and gas properties $ 1,490,210 $ 1,621,188 =========== ===========
16 739 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- --------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 373,973 $ 354,129 $ 348,965 Reimbursement of general and administrative expenses $ 46,688 $ 17,953 $ 21,776
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. In addition, Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- --------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 60 limited partner interests owned by Pioneer USA. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 740
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 831,525 1,374,642 Revisions (383,916) (502,202) Production (74,674) (129,149) ----------- ---------- Net proved reserves at December 31, 1998 372,935 743,291 Revisions 507,962 924,982 Production (64,894) (105,081) ----------- ---------- Net proved reserves at December 31, 1999 816,003 1,563,192 Revisions 148,591 (208,305) Production (66,329) (95,610) ----------- ---------- Net proved reserves at December 31, 2000 898,265 1,259,277 =========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.39 per barrel of NGLs and $7.64 per mcf of gas, discounted at 10% was approximately $6,568,000 and undiscounted was $12,019,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 18 741
For the years ended December 31, ----------------------------------- 2000 1999 1998 ---------- --------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 29,187 $ 20,004 $ 4,058 Future production costs (17,168) (12,833) (3,287) --------- --------- -------- 12,019 7,171 771 10% annual discount factor (5,451) (3,031) (217) --------- --------- -------- Standardized measure of discounted future net cash flows $ 6,568 $ 4,140 $ 554 ========= ========= =======
For the years ended December 31, ------------------------------------- 2000 1999 1998 ---------- --------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,017) $ (353) $ (236) Net changes in prices and production costs 2,672 1,767 (2,176) Revisions of previous quantity estimates 714 3,173 (425) Accretion of discount 414 55 323 Changes in production rates, timing and other (355) (1,056) (163) -------- --------- -------- Change in present value of future net revenues 2,428 3,586 (2,677) -------- --------- -------- Balance, beginning of year 4,140 554 3,231 -------- --------- -------- Balance, end of year $ 6,568 $ 4,140 $ 554 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 37% 36% - TEPPCO Crude Oil LLC 15% 14% - Genesis Crude Oil, L.P. - - 50% Western Gas Resources Inc. 5% 7% 31%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and TEPPCO Crude Oil LLP were $72,179 and $15,378, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The general partner of the Partnership is Pioneer USA. Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 19 742 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $19,317,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 743 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 744 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 745 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated approximately 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 60 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 23 746
2000 1999 1998 ------------- ------------- ------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $373,973 $ 354,129 $348,965 Reimbursement of general and administrative expenses $ 46,688 $ 17,953 $ 21,776
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 747 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 748 SIGNATURES 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 86-C, LTD. Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
/s/ Scott D. Sheffield President of Pioneer USA March 27, 2001 ------------------------------ Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001 ------------------------------ Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001 ------------------------------ Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 27, 2001 ------------------------------ Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 27, 2001 ------------------------------ Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 27, 2001 ------------------------------ Officer of Pioneer USA Rich Dealy
26 749 PARKER & PARSLEY 86-C, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c): Exhibit No. Description Page ----------- ----------- ---- 3(a) Amended and Restated Certificate of - Limited Partnership of Parker & Parsley 86-C, Ltd. incorporated by reference to Exhibit 3a of the Partnership's Registration Statement on Form S-1 (Registration No. 33-3353) (hereinafter called the Partnership's Registration Statement) 4(a) Form of Agreement of Limited Partnership of - Parker & Parsley 86-C, Ltd. incorporated by reference to Exhibit A of Amendment No. 1 of the Partnership's Registration Statement 4(b) Form of Subscription Agreement incorporated by reference to Exhibit C of Amendment No. 1 of the Partnership's Registration Statement - 4(b) Power of Attorney incorporated by reference to an - Exhibit of the Partnership's Registration Statement 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement 10(b) Development Program Agreement incorporated - by reference to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement 27 750 PARKER & PARSLEY 86-C, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 955,101 $ 856,273 $1,865,405 $1,067,096 $ 973,632 $1,484,170 $1,750,717 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 704,864 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ 26,652 $ 277,277 $ 895,701 $ 132,778 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 438,956 $ 307,907 $ 828,383 $ 105,421 $ (423,942) $ (577,071) $1,142,509 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 4,390 $ 3,079 $ 8,284 $ 1,054 $ (4,240) $ (5,770) $ 11,425 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 434,566 $ 304,828 $ 820,099 $ 104,367 $ (419,702) $ (571,301) $1,131,084 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 22.50 $ 15.78 $ 42.45 $ 5.40 $ (21.73) $ (29.58) $ 58.55 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited limited partnership interest $ 15.95 $ 18.03 $ 42.52 $ 12.27 $ 15.20 $ 37.84 $ 69.40(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $2,088,816 $1,929,299 $1,948,019 $1,958,255 $2,071,111 $2,820,637 $4,193,447 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $36.12 in 1996. 751 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Private Investment 86, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Private Investment 86, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 752 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 4,920 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 8,041 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 1,328 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 269.95 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.77 times past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 187.43 -- as of December 31, 2000(c) $ 183.56 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 254.82 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 261.93 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 225
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2036, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 753 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 754 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 133,451 $ 57,176 Accounts receivable - oil and gas sales 68,057 90,053 ---------- ---------- Total current assets 201,508 147,229 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 4,034,151 4,032,771 Accumulated depletion (3,289,733) (3,261,600) ---------- ---------- Net oil and gas properties 744,418 771,171 ---------- ---------- $ 945,926 $ 918,400 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate 13,493 5,165 Partners' capital: Managing general partner 10,293 10,101 Limited partners (123 interests) 922,140 903,134 ---------- ---------- 932,433 913,235 ---------- ---------- $ 945,926 $ 918,400 ========== ==========
The financial information included as of June 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. 2 755 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 146,955 $ 146,532 $ 306,293 $ 286,086 Interest 1,010 969 2,113 1,923 -------- -------- -------- -------- 147,965 147,501 308,406 288,009 -------- -------- -------- -------- Costs and expenses: Oil and gas production 76,829 81,136 142,278 153,874 General and administrative 2,939 2,931 6,126 5,722 Depletion 15,475 12,203 28,133 26,991 -------- -------- -------- -------- 95,243 96,270 176,537 186,587 -------- -------- -------- -------- Net income $ 52,722 $ 51,231 $ 131,869 $ 101,422 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 528 $ 512 $ 1,319 $ 1,014 ======== ======== ======== ======== Limited partners $ 52,194 $ 50,719 $ 130,550 $ 100,408 ======== ======== ======== ======== Net income per limited partnership interest $ 424.34 $ 412.35 $1,061.38 $ 816.33 ======== ======== ======== ========
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. 3 756 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- --------- --------- Balance at January 1, 2001 $ 10,101 $ 903,134 $ 913,235 Distributions (1,127) (111,544) (112,671) Net income 1,319 130,550 131,869 -------- -------- -------- Balance at June 30, 2001 $ 10,293 $ 922,140 $ 932,433 ======== ======== ========
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. 4 757 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 131,869 $ 101,422 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 28,133 26,991 Changes in assets and liabilities: Accounts receivable 21,996 (21,426) Accounts payable 8,328 7,596 -------- -------- Net cash provided by operating activities 190,326 114,583 -------- -------- Cash flows used in investing activities: Additions to oil and gas properties (1,380) (7,913) Cash flows used in financing activities: Cash distributions to partners (112,671) (116,412) -------- -------- Net increase (decrease) in cash 76,275 (9,742) Cash at beginning of period 57,176 72,318 -------- -------- Cash at end of period $ 133,451 $ 62,576 ======== ========
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. 5 758 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Private Investment 86, Ltd. (the "Partnership") is a limited partnership organized in 1986 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 7% to $306,293 for the six months ended June 30, 2001 as compared to $286,086 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices received 6 759 for oil. For the six months ended June 30, 2001, 6,328 barrels of oil, 2,454 barrels of natural gas liquids ("NGLs") and 17,822 mcf of gas were sold, or 11,752 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 7,225 barrels of oil, 3,568 barrels of NGLs and 16,606 mcf of gas were sold, or 13,561 BOEs. The average price received per barrel of oil decreased slightly from $27.85 for the six months ended June 30, 2000 to $27.77 for the same period in 2001. The average price received per barrel of NGLs increased $2.93, or 22%, from $13.35 during the six months ended June 30, 2000 to $16.28 for the same period in 2001. The average price received per mcf of gas increased 127% from $2.24 during the six months ended June 30, 2000 to $5.09 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses decreased to $176,537 for the six months ended June 30, 2001 as compared to $186,587 for the same period in 2000, a decrease of $10,050, or 5%. This decrease was due to lower production costs, offset by increases in general and administrative expenses ("G&A") and depletion. Production costs were $142,278 for the six months ended June 30, 2001 and $153,874 for the same period in 2000, resulting in an $11,596, or 8%, decrease. The decrease was primarily due to less workover costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 7%, from $5,722 for the six months ended June 30, 2000 to $6,126 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $28,133 for the six months ended June 30, 2001 as compared to $26,991 for the same period in 2000, an increase of $1,142, or 4%. This increase was the result of a decline in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 897 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased slightly to $146,955 for the three months ended June 30, 2001 as compared to $146,532 for the same period in 2000. The slight increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decline in production and a lower average 7 760 price received for oil. For the three months ended June 30, 2001, 3,199 barrels of oil, 1,420 barrels of NGLs and 8,870 mcf of gas were sold, or 6,097 BOEs. For the three months ended June 30, 2000, 3,505 barrels of oil, 1,866 barrels of NGLs and 8,672 mcf of gas were sold, or 6,816 BOEs. The average price received per barrel of oil decreased $1.16, or 4%, from $28.16 for the three months ended June 30, 2000 to $27.00 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.43, or 11%, from $13.37 during the three months ended June 30, 2000 to $14.80 for the same period in 2001. The average price received per mcf of gas increased 69% to $4.46 during the three months ended June 30, 2001 from $2.64 during the same period in 2000. Costs and Expenses: Total costs and expenses decreased to $95,243 for the three months ended June 30, 2001 as compared to $96,270 for the same period in 2000, a decrease of $1,027, or 1%. This decrease was due to lower production costs, offset by an increase in G&A and depletion. Production costs were $76,829 for the three months ended June 30, 2001 and $81,136 for the same period in 2000, resulting in a $4,307 decrease, or 5%. The decrease was primarily due to less workover costs. During this period, G&A increased slightly from $2,931 for the three months ended June 30, 2000 to $2,939 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $15,475 for the three months ended June 30, 2001 as compared to $12,203 for the same period in 2000, an increase of $3,272, or 27%. This increase was attributable to a decline in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decline in oil production of 306 barrels for the three months ended June 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 $75,743 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $20,397 and a reduction in working capital of $44,154 and a decline of $11,596 in production costs, offset by an increase in G&A expenses of $404. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $57,068 to oil and gas receipts, offset by $36,671 resulting from the decline in production during 2001 as compared to the same period in 2000. The decrease in production costs was primarily due to less workover costs. The increase in G&A was due to an increase in audit and tax fees. 8 761 Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $112,671, of which $1,127 was distributed to the managing general partner and $111,544 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $116,412, of which $1,164 was distributed to the managing general partner and $115,248 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 9 762 --------------- (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. 10 763 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 764 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Private Investment 86, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley Private Investment 86, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Private Investment 86, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 765 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------------- ---------------- ASSETS ------ Current assets: Cash $ 57,176 $ 72,318 Accounts receivable - oil and gas sales 90,053 49,878 ------------- ------------- Total current assets 147,229 122,196 ------------- ------------- Oil and gas properties - at cost, based on the successful efforts accounting method 4,032,771 4,022,126 Accumulated depletion (3,261,600) (3,212,495) ------------- ------------- Net oil and gas properties 771,171 809,631 ------------- ------------- $ 918,400 $ 931,827 ============== ============== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 5,165 $ 10,250 Partners' capital: Managing general partner 10,101 10,184 Limited partners (123 interests) 903,134 911,393 ------------- ------------- 913,235 921,577 ------------- ------------- $ 918,400 $ 931,827 ============== ==============
The accompanying notes are an integral part of these financial statements. 3 766 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 611,774 $ 354,462 $ 301,556 Interest 4,927 2,697 3,224 --------- --------- ---------- 616,701 357,159 304,780 --------- --------- ---------- Costs and expenses: Oil and gas production 287,563 236,129 213,042 General and administrative 12,235 7,089 6,031 Impairment of oil and gas properties -- -- 98,274 Depletion 49,103 65,740 151,842 --------- --------- ---------- 348,901 308,958 469,189 --------- --------- ---------- Net income (loss) $ 267,800 $ 48,201 $ (164,409) ========= ========= ========== Allocation of net income (loss): Managing general partner $ 2,678 $ 482 $ (1,644) ========= ========= ========== Limited partners $ 265,122 $ 47,719 $ (162,765) ========= ========= ========== Net income (loss) per limited partnership interest $2,155.46 $ 387.96 $(1,323.29) ========= ========= ==========
The accompanying notes are an integral part of these financial statements. 4 767 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ------------- -------------- --------------- Partners' capital at January 1, 1998 $ 13,138 $ 1,203,846 $ 1,216,984 Distributions (1,107) (109,619) (110,726) Net loss (1,644) (162,765) (164,409) ----------- ------------ ----------- Partners' capital at December 31, 1998 10,387 931,462 941,849 Distributions (685) (67,788) (68,473) Net income 482 47,719 48,201 ----------- ------------ ----------- Partners' capital at December 31, 1999 10,184 911,393 921,577 Distributions (2,761) (273,381) (276,142) Net income 2,678 265,122 267,800 ----------- ------------ ----------- Partners' capital at December 31, 2000 $ 10,101 $ 903,134 $ 913,235 ============ ============= ============
The accompanying notes are an integral part of these financial statements. 5 768 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------------- -------------- -------------- Cash flows from operating activities: Net income (loss) $ 267,800 $ 48,201 $ (164,409) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 98,274 Depletion 49,103 65,740 151,842 Changes in assets and liabilities: Accounts receivable (40,175) (18,067) 21,645 Accounts payable (5,085) 5,541 (8,987) ---------- ----------- ------------ Net cash provided by operating activities 271,643 101,415 98,365 ----------- ----------- ------------ Cash flows from investing activities: Additions to oil and gas properties (10,643) (7,363) (9,842) Proceeds from asset dispositions - 701 - ----------- ----------- ------------ Net cash used in investing activities (10,643) (6,662) (9,842) ----------- ----------- ------------ Cash flows used in financing activities: Cash distributions to partners (276,142) (68,473) (110,726) ----------- ----------- ------------ Net increase (decrease) in cash (15,142) 26,280 (22,203) Cash at beginning of year 72,318 46,038 68,241 ----------- ----------- ------------ Cash at end of year $ 57,176 $ 72,318 $ 46,038 ============ ============ =============
The accompanying notes are an integral part of these financial statements. 6 769 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Private Investment 86, Ltd. (the "Partnership") is a limited partnership organized in 1986 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 770 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $98,274 related to its proved oil and gas properties during 1998. 8 771 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $209,861 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Net income (loss) per statements of operations $ 267,800 $ 48,201 $ (164,409) Depletion and depreciation provisions for tax reporting less than amounts for financial reporting purposes 43,051 60,686 147,947 Impairment of oil and gas properties for financial reporting purposes - - 98,274 Other, net (688) (98) 931 ----------- ------------ ----------- Net income per Federal income tax returns $ 310,163 $ 108,789 $ 82,743 ============ ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Development costs $ 10,643 $ 7,363 $ 9,842 ============ ============ ============
Capitalized oil and gas properties consist of the following:
2000 1999 ---------------- ---------------- Proved properties: Property acquisition costs $ 176,667 $ 176,667 Completed wells and equipment 3,856,104 3,845,459 ------------ ------------ 4,032,771 4,022,126 Accumulated depletion (3,261,600) (3,212,495) ------------ ------------ Net oil and gas properties $ 771,171 $ 809,631 ============= =============
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 113,494 $ 109,568 $ 108,785 Reimbursement of general and administrative expenses $ 10,107 $ 3,583 $ 4,004
9 772 The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- --------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) -------------------- ------------------- Net proved reserves at January 1, 1998 268,312 360,572 Revisions (79,340) (72,226) Production (22,245) (33,219) ------------- ------------ Net proved reserves at December 31, 1998 166,727 255,127 Revisions 157,207 248,047 Production (20,843) (30,923) ------------- ------------ Net proved reserves at December 31, 1999 303,091 472,251 Revisions 35,219 57,281 Production (20,938) (33,570) ------------- ------------ Net proved reserves at December 31, 2000 317,372 495,962 ============= ============
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.44 per barrel of NGLs and $7.89 per mcf of gas, discounted at 10% was approximately $2,493,000 and undiscounted $4,970,000. 10 773 Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and gas producing activities: Future cash inflows $ 10,955 $ 7,464 $ 1,802 Future production costs (5,985) (4,360) (1,436) ------------- ------------ ------------- 4,970 3,104 366 10% annual discount factor (2,477) (1,468) (105) ------------- ------------ ------------- Standardized measure of discounted future net cash flows $ 2,493 $ 1,636 $ 261 ============== ============= ==============
11 774
For the years ended December 31, ------------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (324) $ (118) $ (89) Net changes in prices and production costs 864 922 (654) Revisions of previous quantity estimates 293 1,155 (93) Accretion of discount 164 26 102 Changes in production rates, timing and other (140) (610) (25) ------------- ------------ ------------ Change in present value of future net revenues 857 1,375 (759) ------------- ------------ ------------ Balance, beginning of year 1,636 261 1,020 ------------- ------------ ------------ Balance, end of year $ 2,493 $ 1,636 $ 261 ============== ============= =============
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 45% 45% - Mobil Oil Corporation 19% 18% 18% Genesis Crude Oil, L.P. - - 46% Western Gas Resources, Inc. 3% 5% 21%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and Mobil Oil Corporation were $23,848 and $10,948, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $4,920,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs 12 775 allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 776 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 73% to $611,774 for 2000 as compared to $354,462 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 13,860 barrels of oil, 7,078 barrels of natural gas liquids ("NGLs") and 33,570 mcf of gas were sold, or 26,533 barrel of oil equivalents ("BOEs"). In 1999, 13,331 barrels of oil, 7,512 barrels of NGLs and 30,923 mcf of gas were sold, or 25,997 BOEs. 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 increased $12.11, or 70%, from $17.34 in 1999 to $29.45 in 2000. The average price received per barrel of NGLs increased $5.74, or 62%, from $9.27 in 1999 to $15.01 in 2000. The average price received per mcf of gas increased 68% from $1.73 in 1999 to $2.90 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $348,901 as compared to $308,958 in 1999, an increase of $39,943, or 13%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $287,563 in 2000 and $236,129 in 1999, resulting in a $51,434 increase, or 22%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 73% from $7,089 in 1999 to $12,235 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $10,107 in 2000 and $3,583 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $49,103 in 2000 as compared to $65,740 in 1999, representing a decrease of $16,637, or 25%. This decrease was primarily due to a 34,384 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 18% to $354,462 from $301,556 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 13,331 barrels of oil, 7,512 barrels of NGLs and 30,923 mcf of gas were sold, or 25,997 BOEs. In 1998, 14,914 barrels of oil, 7,331 barrels of NGLs and 33,219 mcf of gas were sold, or 27,782 BOEs. 777 The average price received per barrel of oil increased $4.00, or 30%, from $13.34 in 1998 to $17.34 in 1999. The average price received per barrel of NGLs increased $2.58, or 39%, from $6.69 in 1998 to $9.27 in 1999. The average price received per mcf of gas increased 7% from $1.61 in 1998 to $1.73 in 1999. Total costs and expenses decreased in 1999 to $308,958 as compared to $469,189 in 1998, a decrease of $160,231, or 34%. The decrease was primarily due to declines in the impairment of oil and gas properties and depletion, offset by increases in production costs and G&A. Production costs were $236,129 in 1999 and $213,042 in 1998, resulting in a $23,087 increase, or 11%. The increase was due to increased workover costs and well maintenance costs incurred to stimulate well production, offset by a decrease in ad valorem taxes. During this period, G&A increased 18% from $6,031 in 1998 to $7,089 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $3,583 in 1999 and $4,004 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $98,274 related to its oil and gas properties during 1998. Depletion was $65,740 in 1999 compared to $151,842 in 1998, representing a decrease of $86,102, or 57%. This decrease was the result of a combination of factors that included an increase in proved reserves of 97,690 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 1,583 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum Industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $170,228 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $259,542, offset by increases in production costs paid of $51,434, G&A expenses paid of $5,146 and working capital of $32,734. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $242,798 to oil and gas receipts and an increase of $16,744 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 2% of oil and gas revenues) as a result of increased oil and gas revenues. 778 Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on various oil and gas properties. Proceeds from asset dispositions in 1999 of $701 were from equipment credits received on two wells. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $276,142, of which $2,761 was distributed to the managing general partner and $273,381 to the limited partners. In 1999, cash distributions to the partners were $68,473, of which $685 was distributed to the managing general partner and $67,788 to the limited partners. 779 PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 306,293 $ 286,086 $ 611,774 $ 354,462 $ 301,556 $ 443,324 $ 531,378 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 98,274 $ 87,003 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 181,309 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 131,869 $ 101,422 $ 267,800 $ 48,201 $ (164,409) $ (1,482) $ 394,220 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,319 $ 1,014 $ 2,678 $ 482 $ (1,644) $ (15) $ 3,942 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 130,550 $ 100,408 $ 265,122 $ 47,719 $ (162,765) $ (1,467) $ 390,278 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 1,061.38 $ 816.33 $ 2,155.46 $ 387.96 $(1,323.29) $ (11.93) $ 3,172.99 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 906.86 $ 936.98 $ 2,222.61 $ 551.12 $ 891.21 $ 1,688.39 $ 3,519.32(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 945,926 $ 924,433 $ 918,400 $ 931,827 $ 946,558 $1,230,680 $1,439,437 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $1,474.06 in 1996. 780 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 87-A CONV., LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 87-A Conv., Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 87-A Conv., Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 781 PARKER & PARSLEY 87-A CONV., LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 3,856 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 5,136 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 765 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 200.21 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.38 times past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 120.97 -- as of December 31, 2000(c) $ 113.34 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 185.61 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 194.37 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 177
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2037, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 782 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 783 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 99,031 $ 42,044 Accounts receivable - oil and gas sales 47,720 58,386 ---------- ---------- Total current assets 146,751 100,430 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,608,971 2,703,338 Accumulated depletion (2,278,301) (2,357,166) ---------- ---------- Net oil and gas properties 330,670 346,172 ---------- ---------- $ 477,421 $ 446,602 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 6,256 $ 5,133 Partners' capital: Managing general partner 4,714 4,417 Limited partners (3,856 interests) 466,451 437,052 ---------- ---------- 471,165 441,469 ---------- ---------- $ 477,421 $ 446,602 ========== ==========
The financial information included as of June 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. 2 784 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ----------------------- 2001 2000 2001 2000 --------- --------- --------- ---------- Revenues: Oil and gas $ 83,576 $ 94,529 $ 187,285 $ 181,312 Interest 729 952 1,458 1,645 Gain on disposition of assets 5,588 - 5,909 784 -------- -------- -------- --------- 89,893 95,481 194,652 183,741 -------- -------- -------- --------- Costs and expenses: Oil and gas production 36,798 35,010 74,815 70,536 General and administrative 2,508 2,836 5,619 5,439 Depletion 5,824 5,961 15,718 12,899 Abandoned property 3,134 - 3,134 - -------- -------- -------- --------- 48,264 43,807 99,286 88,874 -------- -------- -------- --------- Net income $ 41,629 $ 51,674 $ 95,366 $ 94,867 ======== ======== ======== ========= Allocation of net income: Managing general partner $ 417 $ 517 $ 954 $ 949 ======== ======== ======== ========= Limited partners $ 41,212 $ 51,157 $ 94,412 $ 93,918 ======== ======== ======== ========= Net income per limited partnership interest $ 10.68 $ 13.27 $ 24.48 $ 24.36 ======== ======== ======== =========
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. 3 785 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 4,417 $ 437,052 $ 441,469 Distributions (657) (65,013) (65,670) Net income 954 94,412 95,366 -------- --------- --------- Balance at June 30, 2001 $ 4,714 $ 466,451 $ 471,165 ======== ========= =========
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. 4 786 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 95,366 $ 94,867 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 15,718 12,899 Gain on disposition of assets (5,909) (784) Changes in assets and liabilities: Accounts receivable 10,666 (17,100) Accounts payable 4,259 3,710 -------- -------- Net cash provided by operating activities 120,100 93,592 -------- -------- Cash flows from investing activities: Additions to oil and gas properties (531) (1,130) Proceeds from asset dispositions 3,088 1,015 -------- -------- Net cash provided by (used in) investing activities 2,557 (115) -------- -------- Cash flows used in financing activities: Cash distributions to partners (65,670) (104,242) -------- -------- Net increase (decrease) in cash 56,987 (10,765) Cash at beginning of period 42,044 53,265 -------- -------- Cash at end of period $ 99,031 $ 42,500 ======== ========
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. 5 787 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 87-A Conv., Ltd. (the "Partnership") was organized in 1987 as a general partnership under the laws of the State of Texas and was converted to a Texas limited partnership in 1989. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 3% to $187,285 for the six months ended June 30, 2001 as compared to $181,312 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 3,828 barrels 6 788 of oil, 2,015 barrels of natural gas liquids ("NGLs") and 10,345 mcf of gas were sold, or 7,567 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 4,349 barrels of oil, 2,563 barrels of NGLs and 11,375 mcf of gas were sold, or 8,808 BOEs. The average price received per barrel of oil increased slightly from $27.41 for the six months ended June 30, 2000 to $27.45 for the same period in 2001. The average price received per barrel of NGLs increased $2.10, or 14%, from $14.63 during the six months ended June 30, 2000 to $16.73 for the same period in 2001. The average price received per mcf of gas increased 116% from $2.17 during the six months ended June 30, 2000 to $4.69 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 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 six months ended June 30, 2001. Gain on disposition of assets of $5,909 was received during the six months ended June 30, 2001 of which $5,123 was from disposal of equipment on two wells plugged and abandoned during the current period and $786 was from equipment credits received on one fully depleted well. Expenses to plug and abandon these wells were $3,134. For the six months ended June 30, 2000, a gain of $784 was recognized due to equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $99,286 for the six months ended June 30, 2001 as compared to $88,874 for the same period in 2000, an increase of $10,412, or 12%. This increase was due to increases in production costs, abandoned property costs, depletion and general and administrative expenses ("G&A"). Production costs were $74,815 for the six months ended June 30, 2001 and $70,536 for the same period in 2000, resulting in a $4,279 increase, or 6%. The increase was due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 3% from $5,439 for the six months ended June 30, 2000 to $5,619 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $15,718 for the six months ended June 30, 2001 as compared to $12,899 for the same period in 2000, an increase of $2,819 or 22%. This increase was due to a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decrease in oil production of 521 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 7 789 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 12% to $83,576 for the three months ended June 30, 2001 as compared to $94,529 for the same period in 2000. The decrease in revenues resulted from a decrease in production and a lower average price received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 1,918 barrels of oil, 993 barrels of NGLs and 4,627 mcf of gas were sold, or 3,682 BOEs. For the three months ended June 30, 2000, 2,163 barrels of oil, 1,381 barrels of NGLs and 5,950 mcf of gas were sold, or 4,536 BOEs. The average price received per barrel of oil decreased $.58, or 2%, from $27.64 for the three months ended June 30, 2000 to $27.06 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $.57, or 4%, from $14.21 during the three months ended June 30, 2000 to $14.78 for the same period in 2001. The average price received per mcf of gas increased 44% to $3.67 during the three months ended June 30, 2001 from $2.55 during the same period in 2000. Gain on disposition of assets of $5,588 was received during the three months ended June 30, 2001 of which $5,123 was from disposal of equipment on two wells plugged and abandoned during the current period and $465 was from equipment credits received on one fully depleted well. Expenses to plug and abandon these wells were $3,134. Costs and Expenses: Total costs and expenses increased to $48,264 for the three months ended June 30, 2001 as compared to $43,807 for the same period in 2000, an increase of $4,457, or 10%. This increase was due to higher production costs and abandoned property costs, offset by declines in G&A and depletion. Production costs were $36,798 for the three months ended June 30, 2001 and $35,010 for the same period in 2000, resulting in a $1,788 increase, or 5%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production. During this period, G&A decreased 12%, from $2,836 for the three months ended June 30, 2000 to $2,508 for the same period in 2001, due to a decrease in audit and tax fees. Depletion was $5,824 for the three months ended June 30, 2001 as compared to $5,961 for the same period in 2000, a decrease of $137, or 2%. This decrease was attributable to a decrease in oil production of 245 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 8 790 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $26,508 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $5,786 and a reduction in working capital of $28,315, offset by increases in production costs of $4,279, abandoned property costs of $3,134 and G&A expenses of $180. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $34,082 to oil and gas receipts, offset by $28,296 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with increased oil and gas prices. The increase in G&A was due to an increase in audit and tax fees. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities for the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on various oil and gas properties. Proceeds from asset dispositions of $3,088 and $1,015 received during the six months ended June 30, 2001 and 2000, respectively, were comprised of $786 and $784, respectively, received from the salvage of equipment on one fully depleted well and $316 and $231, respectively, from equipment salvage on active properties. A gain of $1,986 was recognized during the six months ended June 30, 2001 due to salvage income received on two wells plugged and abandoned. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $65,670, of which $657 was distributed to the managing general partner and $65,013 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $104,242, of which $1,042 was distributed to the managing general partner and $103,200 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge 9 791 with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 792 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 793 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 87-A Conv., Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 87-A Conv., Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 87-A Conv., Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 794 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 42,044 $ 53,265 Accounts receivable - oil and gas sales 58,386 34,510 ----------- ----------- Total current assets 100,430 87,775 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,703,338 2,701,261 Accumulated depletion (2,357,166) (2,326,550) ----------- ----------- Net oil and gas properties 346,172 374,711 ----------- ----------- $ 446,602 $ 462,486 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 5,133 $ 6,175 Partners' capital: Managing general partner 4,417 4,565 Limited partners (3,856 interests) 437,052 451,746 ----------- ----------- 441,469 456,311 ----------- ----------- $ 446,602 $ 462,486 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 795 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 -------- --------- --------- Revenues: Oil and gas $ 380,908 $ 234,259 $ 194,541 Interest 3,744 2,131 2,599 Gain on disposition of assets 857 1,184 102 --------- --------- --------- 385,509 237,574 197,242 --------- --------- --------- Costs and expenses: Oil and gas production 150,075 126,927 143,008 General and administrative 11,235 6,978 5,727 Impairment of oil and gas properties 5,726 -- 63,814 Depletion 24,890 35,270 83,255 --------- --------- --------- 191,926 169,175 295,804 --------- --------- --------- Net income (loss) $ 193,583 $ 68,399 $ (98,562) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 1,936 $ 684 $ (986) ========= ========= ========= Limited partners $ 191,647 $ 67,715 $ (97,576) ========= ========= ========= Net income (loss) per limited partnership interest $ 49.70 $ 17.56 $ (25.30) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 796 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ---------- --------- --------- Partners' capital at January 1, 1998 $ 6,329 $ 626,350 $ 632,679 Distributions (761) (75,346) (76,107) Net loss (986) (97,576) (98,562) --------- --------- --------- Partners' capital at December 31, 1998 4,582 453,428 458,010 Distributions (701) (69,397) (70,098) Net income 684 67,715 68,399 --------- --------- --------- Partners' capital at December 31, 1999 4,565 451,746 456,311 Distributions (2,084) (206,341) (208,425) Net income 1,936 191,647 193,583 --------- --------- --------- Partners' capital at December 31, 2000 $ 4,417 $ 437,052 $ 441,469 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 5 797 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 193,583 $ 68,399 $ (98,562) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 5,726 -- 63,814 Depletion 24,890 35,270 83,255 Gain on disposition of assets (857) (1,184) (102) Changes in assets and liabilities: Accounts receivable (23,876) (12,786) 17,191 Accounts payable (1,042) 1,263 (2,930) --------- --------- --------- Net cash provided by operating activities 198,424 90,962 62,666 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (2,560) (5,634) (2,338) Proceeds from disposition of assets 1,340 1,238 2,095 --------- --------- --------- Net cash used in investing activities (1,220) (4,396) (243) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (208,425) (70,098) (76,107) --------- --------- --------- Net increase (decrease) in cash (11,221) 16,468 (13,684) Cash at beginning of year 53,265 36,797 50,481 --------- --------- --------- Cash at end of year $ 42,044 $ 53,265 $ 36,797 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 798 PARKER & PARSLEY 87-A CONV., LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 87-A Conv., Ltd. (the "Partnership") was organized in 1987 as a general partnership under the laws of the State of Texas and was converted to a Texas limited partnership in 1989. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 7 799 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 8 800 cash flows at a discount rate commensurate with the risks involved in the industry. As a result, the Partnership recognized non-cash impairment provisions of $5,726 and $63,814 related to its proved oil and gas properties during 2000 and 1998, respectively. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $34,055 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------- -------- -------- Net income (loss) per statements of operations $ 193,583 $ 68,399 $(98,562) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 21,481 31,994 77,835 Impairment of oil and gas properties for financial reporting purposes 5,726 -- 63,814 Salvage income -- -- 1,795 Other, net (320) (923) 1,074 -------- -------- -------- Net income per Federal income tax returns $ 220,470 $ 99,470 $ 45,956 ======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- --------- --------- Development costs $ 2,560 $ 5,634 $ 2,338 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ---- ---- Proved properties: Property acquisition costs $ 126,683 $ 126,683 Completed wells and equipment 2,576,655 2,574,578 ----------- ----------- 2,703,338 2,701,261 Accumulated depletion (2,357,166) (2,326,550) ----------- ----------- Net oil and gas properties $ 346,172 $ 374,711 =========== ===========
9 801 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ---------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 57,269 $ 58,965 $ 59,200 Reimbursement of general and administrative expenses $ 9,809 $ 4,592 $ 4,507
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, Parker & Parsley 87-A, Ltd. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) -------------- --------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 35 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 87-A, Ltd. is 11.80396% and 88.19604%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 802
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 173,242 260,824 Revisions (70,303) (79,797) Production (14,371) (24,025) -------- -------- Net proved reserves at December 31, 1998 88,568 157,002 Revisions 121,459 218,318 Production (13,578) (24,503) -------- -------- Net proved reserves at December 31, 1999 196,449 350,817 Revisions (1,562) (40,268) Production (13,096) (20,355) -------- -------- Net proved reserves at December 31, 2000 181,791 290,194 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.38 per barrel of NGLs and $7.67 per mcf of gas, discounted at 10% was approximately $1,465,000 and undiscounted was $2,903,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 11 803
For the years ended December 31, ------------------------------ 2000 1999 1998 ------- ------- ------- (in thousands) Oil and gas producing activities: Future cash inflows $ 6,182 $ 4,834 $ 964 Future production costs (3,279) (2,837) (754) ------- ------- ------- 2,903 1,997 210 10% annual discount factor (1,438) (931) (61) ------- ------- ------- Standardized measure of discounted future net cash flows $ 1,465 $ 1,066 $ 149 ======= ======= =======
For the years ended December 31, ----------------------------------- 2000 1999 1998 -------- --------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (231) $ (107) $ (52) Net changes in prices and production costs 663 480 (462) Revisions of previous quantity estimates (56) 878 (87) Accretion of discount 106 15 71 Changes in production rates, timing and other (83) (349) (26) -------- --------- -------- Change in present value of future net revenues 399 917 (556) -------- --------- -------- Balance, beginning of year 1,066 149 705 -------- --------- -------- Balance, end of year $ 1,465 $ 1,066 $ 149 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 ---- ---- ---- Plains Marketing, L.P. 43% 40% -- Phillips Petroleum Company 10% -- -- Genesis Crude Oil, L.P. -- -- 54% Western Gas Resources, Inc. 4% 7% 29% NGTS LLC 8% -- --
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and Phillips Petroleum Company were $16,353 and $3,196, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. 12 804 NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $3,856,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 805 PARKER & PARSLEY 87-A CONV., LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 63% to $380,908 for 2000 as compared to $234,259 in 1999. The increase in revenues resulted from higher average prices received, offset by a decrease in production. In 2000, 8,407 barrels of oil, 4,689 barrels of natural gas liquids ("NGLs") and 20,355 mcf of gas were sold, or 16,489 barrel of oil equivalents ("BOEs"). In 1999, 8,263 barrels of oil, 5,315 barrels of NGLs and 24,503 mcf of gas were sold, or 17,662 BOEs. 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 increased $12.40, or 73%, from $17.06 in 1999 to $29.46 in 2000. The average price received per barrel of NGLs increased $6.20, or 63%, from $9.81 in 1999 to $16.01 in 2000. The average price received per mcf of gas increased 70% from $1.68 in 1999 to $2.86 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $191,926 as compared to $169,175 in 1999, an increase of $22,751, or 13%. The increase was primarily due to increases in production costs, impairment of oil and gas properties and general and administrative expenses ("G&A"), offset by a decline in depletion. Gains on disposition of assets of $857 and $1,184 were due to equipment credits received on one well during 2000 and 1999, respectively. Production costs were $150,075 in 2000 and $126,927 in 1999, resulting in a $23,148 increase, or 18%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional workover and well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 61% from $6,978 in 1999 to $11,235 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $9,809 in 2000 and $4,592 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $5,726 related to its oil and gas properties during 2000. 806 Depletion was $24,890 in 2000 as compared to $35,270 in 1999, representing a decrease of $10,380, or 29%. This decrease was primarily due to an 8,116 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 20% to $234,259 from $194,541 in 1998. The increase in revenues resulted from higher average prices received, offset by a decrease in production. In 1999, 8,263 barrels of oil, 5,315 barrels of NGLs and 24,503 mcf of gas were sold, or 17,662 BOEs. In 1998, 9,354 barrels of oil, 5,017 barrels of NGLs and 24,025 mcf of gas were sold, or 18,375 BOEs. The average price received per barrel of oil increased $3.84, or 29%, from $13.22 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs increased $3.05, or 45%, from $6.76 in 1998 to $9.81 in 1999. The average price received per mcf of gas increased 9% from $1.54 in 1998 to $1.68 in 1999. Total costs and expenses decreased in 1999 to $169,175 as compared to $295,804 in 1998, a decrease of $126,629, or 43%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $126,927 in 1999 and $143,008 in 1998, resulting in a $16,081 decrease, or 11%. The decrease was due to declines in well maintenance costs, workover expenses and ad valorem taxes, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 22% from $5,727 in 1998 to $6,978 in 1999 primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $4,592 in 1999 and $4,507 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $63,814 related to its oil and gas properties during 1998. Depletion was $35,270 in 1999 compared to $83,255 in 1998, representing a decrease of $47,985, or 58%. This decrease was primarily due to an increase in proved reserves of 71,246 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 1,091 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 807 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $107,462 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $148,262, offset by increases in production costs paid of $23,148, G&A expenses paid of $4,257 and working capital of $13,395. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $165,908 to oil and gas receipts, offset by $17,646 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and workover and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 were related to upgrades of equipment on active properties. Proceeds from asset dispositions of $1,340 and $1,238 received during 2000 and 1999, respectively, were primarily due to equipment credits received on active properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $208,425, of which $2,084 was distributed to the managing general partner and $206,341 to the limited partners. In 1999, cash distributions to the partners were $70,098, of which $701 was distributed to the managing general partner and $69,397 to the limited partners. 808 PARKER & PARSLEY 87-A CONV., LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 187,285 $ 181,312 $ 380,908 $ 234,259 $ 194,541 $ 298,836 $ 351,679 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 5,726 $ -- $ 63,814 $ 98,114 $ 46,639 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 113,535 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 95,366 $ 94,867 $ 193,583 $ 68,399 $ (98,562) $ (7,019) $ 241,359 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 954 $ 949 $ 1,936 $ 684 $ (986) $ (70) $ 2,413 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 94,412 $ 93,918 $ 191,647 $ 67,715 $ (97,576) $ (6,949) $ 238,946 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 24.48 $ 24.36 $ 49.70 $ 17.56 $ (25.30) $ (1.80) $ 61.97 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 16.86 $ 26.76 $ 53.51 $ 18.00 $ 19.54 $ 42.51 $ 89.89(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 477,421 $ 456,821 $ 446,602 $ 462,486 $ 462,922 $ 640,521 $ 825,116 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $29.44 in 1996. 809 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 87-A, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 87-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 87-A, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 810 PARKER & PARSLEY 87-A, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 28,811 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 38,379 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 5,714 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 199.53 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.38 times past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 121.20 -- as of December 31, 2000(c) $ 113.60 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 184.94 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 193.72 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 177
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2037, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 811 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, 2001 Commission File No. 33-12244-01 PARKER & PARSLEY 87-A, LTD. (Exact name of Registrant as specified in its charter) Texas 75-2185148 -------------------------------------------- --------------------- (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 / / 812 PARKER & PARSLEY 87-A, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................. 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................. 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000............................... 6 Notes to Financial Statements.......................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K....................... 11 Signatures............................................. 12
2 813 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 746,861 $ 321,340 Accounts receivable - oil and gas sales 355,540 435,508 ----------- ----------- Total current assets 1,102,401 756,848 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 19,493,557 20,198,629 Accumulated depletion (17,022,826) (17,611,694) ----------- ----------- Net oil and gas properties 2,470,731 2,586,935 ----------- ----------- $ 3,573,132 $ 3,343,783 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 45,917 $ 37,865 Partners' capital: Managing general partner 35,245 33,032 Limited partners (28,811 interests) 3,491,970 3,272,886 ----------- ----------- 3,527,215 3,305,918 ----------- ----------- $ 3,573,132 $ 3,343,783 =========== ===========
The financial information included as of June 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. 3 814 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues: Oil and gas $ 624,236 $ 708,134 $1,399,068 $1,357,075 Interest 5,550 7,074 11,014 12,302 Gain on disposition of assets 41,754 - 44,153 5,861 --------- --------- --------- --------- 671,540 715,208 1,454,235 1,375,238 --------- --------- --------- --------- Costs and expenses: Oil and gas production 274,936 261,610 559,015 527,318 General and administrative 18,727 20,848 41,972 40,316 Depletion 43,530 44,465 117,815 96,209 Abandoned property 23,416 - 23,416 - --------- --------- --------- --------- 360,609 326,923 742,218 663,843 --------- --------- --------- --------- Net income $ 310,931 $ 388,285 $ 712,017 $ 711,395 ========= ========= ========= ========= Allocation of net income: Managing general partner $ 3,109 $ 3,883 $ 7,120 $ 7,114 ========= ========= ========= ========= Limited partners $ 307,822 $ 384,402 $ 704,897 $ 704,281 ========= ========= ========= ========= Net income per limited partnership interest $ 10.69 $ 13.34 $ 24.47 $ 24.44 ========= ========= ========= =========
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. 4 815 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ----------- Balance at January 1, 2001 $ 33,032 $3,272,886 $ 3,305,918 Distributions (4,907) (485,813) (490,720) Net income 7,120 704,897 712,017 -------- --------- --------- Balance at June 30, 2001 $ 35,245 $3,491,970 $ 3,527,215 ======== ========= ==========
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. 5 816 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 712,017 $ 711,395 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 117,815 96,209 Gain on disposition of assets (44,153) (5,861) Changes in assets and liabilities: Accounts receivable 79,968 (62,891) Accounts payable 31,488 26,863 --------- --------- Net cash provided by operating activities 897,135 765,715 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (3,969) (8,446) Proceeds from asset dispositions 23,075 7,591 --------- --------- Net cash provided by (used in) investing activities 19,106 (855) --------- --------- Cash flows used in financing activities: Cash distributions to partners (490,720) (778,868) --------- --------- Net increase (decrease) in cash 425,521 (14,008) Cash at beginning of period 321,340 339,531 --------- --------- Cash at end of period $ 746,861 $ 325,523 ========= =========
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. 6 817 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 3% to $1,399,068 for the six months ended June 30, 2001 as compared to $1,357,075 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 28,595 barrels of oil, 15,052 barrels of natural gas liquids ("NGLs") and 77,315 7 818 mcf of gas were sold, or 56,533 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 32,573 barrels of oil, 19,149 barrels of NGLs and 84,978 mcf of gas were sold, or 65,885 BOEs. The average price received per barrel of oil increased slightly from $27.41 for the six months ended June 30, 2000 to $27.45 for the same period in 2001. The average price received per barrel of NGLs increased $2.10, or 14%, from $14.63 during the six months ended June 30, 2000 to $16.73 for the same period in 2001. The average price received per mcf of gas increased 116% from $2.17 during the six months ended June 30, 2000 to $4.69 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 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 six months ended June 30, 2001. Gain on disposition of assets of $44,153 was received during the six months ended June 30, 2001 of which $38,277 was from disposal of equipment on two wells plugged and abandoned during the current period and $5,876 was from equipment credits received on one fully depleted well. Expenses to plug and abandon these wells were $23,416. For the six months ended June 30, 2000, a gain of $5,861 was recognized due to equipment credits received on a fully depleted well. Costs and Expenses: Total costs and expenses increased to $742,218 for the six months ended June 30, 2001 as compared to $663,843 for the same period ended June 30, 2000, an increase of $78,375, or 12%. This increase was due to increases in production costs, abandoned property costs, depletion and general and administrative expenses ("G&A"). Production costs were $559,015 for the six months ended June 30, 2001 and $527,318 for the same period in 2000 resulting in an increase of $31,697, or 6%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 4% from $40,316 for the six months ended June 30, 2000 to $41,972 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $117,815 for the six months ended June 30, 2001 as compared to $96,209 for the same period in 2000, an increase of $21,606, or 22%. This increase was due to a decline in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 3,978 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 8 819 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 12% to $624,236 for the three months ended June 30, 2001 as compared to $708,134 for the same period in 2000. The decrease in revenues resulted from a decrease in production and a lower average price received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 14,328 barrels of oil, 7,417 barrels of NGLs and 34,560 mcf of gas were sold, or 27,505 BOEs. For the three months ended June 30, 2000, 16,239 barrels of oil, 10,298 barrels of NGLs and 44,352 mcf of gas were sold, or 33,929 BOEs. The average price received per barrel of oil decreased $.58, or 2%, from $27.64 for the three months ended June 30, 2000 to $27.06 for the same period in 2001. The average price received per barrel of NGLs increased $.57, or 4%, from $14.21 during the three months ended June 30, 2000 to $14.78 for the same period in 2001. The average price received per mcf of gas increased 44% from $2.55 during the three months ended June 30, 2000 to $3.67 for the same period in 2001. Gain on disposition of assets of $41,754 was received during the three months ended June 30, 2001 of which $38,277 was from disposal of equipment on two wells plugged and abandoned during the current period and $3,477 was from equipment credits received on one fully depleted well. Expenses to plug and abandon these wells were $23,416. Costs and Expenses: Total costs and expenses increased to $360,609 for the three months ended June 30, 2001 as compared to $326,923 for the same period in 2000, an increase of $33,686, or 10%. This increase was due to increases in abandoned property costs and production costs, offset by declines in G&A and depletion. Production costs were $274,936 for the three months ended June 30, 2001 and $261,610 for the same period in 2000 resulting in a $13,326 increase, or 5%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production. During this period, G&A decreased 10% from $20,848 for the three months ended June 30, 2000 to $18,727 for the same period in 2001, primarily due to a decrease in audit and tax fees. Depletion was $43,530 for the three months ended June 30, 2001 as compared to $44,465 for the same period in 2000, a decrease of $935, or 2%. This decrease was primarily due to a decline in oil production of 1,911 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 9 820 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $131,420 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was primarily due to an increase of $40,705 in oil and gas sales receipts and a reduction in working capital of $147,484, offset by increases in production costs of $31,697, G&A expenses of $1,656 and abandoned property costs of $23,416. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $254,340 to oil and gas receipts, offset by $213,635 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to an increase in audit and tax fees. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to the upgrades of oil and gas equipment on active properties. Proceeds from asset dispositions of $23,075 and $7,591 were received during the six months ended June 30, 2001 and 2000, respectively. Proceeds recognized during the period in 2001 were related to $14,840 from salvage income received on two wells plugged and abandoned and $8,235 from equipment credits received on a fully depleted well. Proceeds recognized during the period in 2000 were from equipment credits received on fully depleted properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $490,720, of which $4,907 was distributed to the managing general partner and $485,813 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $778,868, of which $7,789 was distributed to the managing general partner and $771,079 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge 10 821 with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 822 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) SIGNATURES 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 87-A, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 8, 2001 By: /s/ Rich Dealy ------------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 823 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-12244-01 PARKER & PARSLEY 87-A, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-2185148 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $28,636,000. As of March 8, 2001, the number of outstanding limited partnership interests was 28,811. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 824 PART I ITEM 1. BUSINESS Parker & Parsley 87-A, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 28,811 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers. Of the Partnership's total oil and gas revenues for 2000, approximately 43% and 11% was attributable to sales made to Plains Marketing, L.P. and NGTS LLC, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 825 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 96 oil and gas wells. Two wells were dry holes. Six uneconomical wells were plugged and abandoned and 15 oil and gas wells have been sold. At December 31, 2000, 73 wells were producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 826 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 28,811 outstanding limited partnership interests held of record by 2,148 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $1,541,726 and $518,518, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ------------- ------------ ----------- ------------ ----------- Operating results: ------------------ Oil and gas sales $ 2,845,556 $ 1,750,425 $ 1,453,492 $ 2,232,898 $ 2,627,636 ============ =========== ============ ============ =========== Gain on litigation settlement, net $ - $ - $ - $ - $ 848,304 ============ =========== ============ ============ =========== Impairment of oil and gas properties $ 42,807 $ - $ 477,501 $ 732,890 $ 348,546 ============ =========== ============ ============ =========== Net income (loss) $ 1,444,249 $ 511,237 $ (736,103) $ (49,528) $ 1,803,894 ============ =========== ============ ============ =========== Allocation of net income (loss): Managing general partner $ 14,442 $ 5,112 $ (7,361) $ (495) $ 18,039 =========== =========== ============ ============ =========== Limited partners $ 1,429,807 $ 506,125 $ (728,742) $ (49,033) $ 1,785,855 =========== =========== ============ ============ =========== Limited partners' net income (loss) per limited partnership interest $ 49.63 $ 17.57 $ (25.29) $ (1.70) $ 61.99 =========== =========== ============ ============ ============ Limited partners' cash distributions per limited partnership interest $ 53.51 $ 18.00 $ 19.54 $ 42.52 $ 89.89(a) ============ =========== ============ ============ =========== At year end: ------------ Identifiable assets $ 3,343,783 $ 3,464,619 $ 3,466,459 $ 4,793,102 $ 6,171,831 ============ =========== ============ ============ ===========
--------------- (a) Including litigation settlement per limited partnership interest of $29.15 in 1996. 4 827 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 63% to $2,845,556 for 2000 as compared to $1,750,425 in 1999. The increase in revenues resulted from higher average prices received, offset by a decrease in production. In 2000, 62,796 barrels of oil, 35,028 barrels of natural gas liquids ("NGLs") and 152,075 mcf of gas were sold, or 123,170 barrel of oil equivalents ("BOEs"). In 1999, 61,734 barrels of oil, 39,707 barrels of NGLs and 183,099 mcf of gas were sold, or 131,958 BOEs. 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 increased $12.40, or 73%, from $17.06 in 1999 to $29.46 in 2000. The average price received per barrel of NGLs increased $6.20, or 63%, from $9.81 in 1999 to $16.01 in 2000. The average price received per mcf of gas increased 70% from $1.68 in 1999 to $2.86 in 2000. The market price received for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gains on disposition of assets of $6,407 and $8,848 were due to equipment credits received on one well during 2000 and 1999, respectively. Total costs and expenses increased in 2000 to $1,435,888 compared to $1,264,233 in 1999, an increase of $171,655, or 14%. The increase resulted from increases in production costs, the impairment of oil and gas properties and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $1,121,487 in 2000 and $948,362 in 1999, resulting in an increase of $173,125, or 18%. This increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 63% from $52,563 in 1999 to $85,559 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $73,296 in 2000 and $34,349 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 828 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $42,807 related to its oil and gas properties during 2000. Depletion was $186,035 in 2000 as compared to $263,308 in 1999, representing a decrease of $77,273, or 29%. This decrease was primarily due to a 45,228 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 20% to $1,750,425 from $1,453,492 in 1998. The increase in revenues resulted from higher average prices received, offset by a decrease in production. In 1999, 61,734 barrels of oil, 39,707 barrels of NGLs and 183,099 mcf of gas were sold, or 131,958 BOEs. In 1998, 69,905 barrels of oil, 37,470 barrels of NGLs and 179,494 mcf of gas were sold, or 137,291 BOEs. The average price received per barrel of oil increased $3.84, or 29%, from $13.22 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs increased $3.05, or 45%, from $6.76 in 1998 to $9.81 in 1999. The average price received per mcf of gas increased 9% from $1.54 in 1998 to $1.68 in 1999. A gain on disposition of assets of $8,848 was recognized during 1999 from equipment credits received on one fully depleted well. During 1998, a gain on disposition of assets of $765 was received from the sale of equipment on one saltwater disposal well plugged and abandoned in a prior year. Total costs and expenses decreased in 1999 to $1,264,233 compared to $2,210,330 in 1998, a decrease of $946,097, or 43%. The decrease resulted from declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $948,362 in 1999 and $1,068,450 in 1998, resulting in a $120,088 decrease, or 11%. This decrease was primarily attributable to reductions in well maintenance costs, workover expenses and ad valorem taxes, offset by an increase in production taxes due to increased in oil and gas revenues. During this period, G&A increased, in aggregate, 23% from $42,787 in 1998 to $52,563 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $34,349 in 1999 and $33,674 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $477,501 related to its oil and gas properties during 1998. 6 829 Depletion was $263,308 in 1999 compared to $621,592 in 1998. This represented a decrease of $358,284, or 58%. This decrease was the result of a combination of factors that included an increase in proved reserves of 532,499 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 8,171 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $934,385 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $1,107,108 and a decline in working capital of $33,398, offset by increases in production costs paid of $173,125 and G&A expenses paid of $32,996. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $1,239,482 to oil and gas receipts, offset by $132,374 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 were related to the upgrades of oil and gas equipment on active properties. Proceeds from asset dispositions of $10,011 and $9,249 received during 2000 and 1999, respectively, were from equipment credits on one well in each year. Net Cash Used in Financing Activities 7 830 In 2000, cash distributions to the partners were $1,557,299, of which $15,573 was distributed to the managing general partner and $1,541,726 to the limited partners. In 1999, cash distributions to the partners were $523,756, of which $5,238 was distributed to the managing general partner and $518,518 to the limited partners. 8 831 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS Page Financial Statements of Parker & Parsley 87-A, Ltd: Independent Auditors' Report......................................................... 10 Balance Sheets as of December 31, 2000 and 1999...................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 14 Notes to Financial Statements........................................................ 15
9 832 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 87-A, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 87-A, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 87-A, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 10 833 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---- ---- ASSETS ------ Current assets: Cash $ 321,340 $ 339,531 Accounts receivable - oil and gas sales 435,508 324,832 ---------- ---------- Total current assets 756,848 664,363 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 20,198,629 20,183,108 Accumulated depletion (17,611,694) (17,382,852) ----------- ----------- Net oil and gas properties 2,586,935 2,800,256 ---------- ----------- $ 3,343,783 $ 3,464,619 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 37,865 $ 45,651 Partners' capital: Managing general partner 33,032 34,163 Limited partners (28,811 interests) 3,272,886 3,384,805 ---------- --------- 3,305,918 3,418,968 ----------- ---------- $ 3,343,783 $ 3,464,619 =========== ==========
The accompanying notes are an integral part of these financial statements. 11 834 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ------------ ---------- ------------ Revenues: Oil and gas $ 2,845,556 $ 1,750,425 $ 1,453,492 Interest 28,174 16,197 19,970 Gain on disposition of assets 6,407 8,848 765 ----------- ----------- ----------- 2,880,137 1,775,470 1,474,227 ----------- ----------- ----------- Costs and expenses: Oil and gas production 1,121,487 948,362 1,068,450 General and administrative 85,559 52,563 42,787 Impairment of oil and gas properties 42,807 -- 477,501 Depletion 186,035 263,308 621,592 ----------- ----------- ----------- 1,435,888 1,264,233 2,210,330 ----------- ----------- ----------- Net income (loss) $ 1,444,249 $ 511,237 $ (736,103) =========== =========== =========== Allocation of net income (loss): Managing general partner $ 14,442 $ 5,112 $ (7,361) =========== =========== =========== Limited partners $ 1,429,807 $ 506,125 $ (728,742) =========== =========== =========== Net income (loss) per limited partnership interest $ 49.63 $ 17.57 $ (25.29) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 835 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 47,336 $ 4,688,910 $ 4,736,246 Distributions (5,686) (562,970) (568,656) Net loss (7,361) (728,742) (736,103) ----------- ----------- ----------- Partners' capital at December 31, 1998 34,289 3,397,198 3,431,487 Distributions (5,238) (518,518) (523,756) Net income 5,112 506,125 511,237 ----------- ----------- ----------- Partners' capital at December 31, 1999 34,163 3,384,805 3,418,968 Distributions (15,573) (1,541,726) (1,557,299) Net income 14,442 1,429,807 1,444,249 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 33,032 $ 3,272,886 $ 3,305,918 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 13 836 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------------ ----------- ----------- Cash flows from operating activities: Net income (loss) $ 1,444,249 $ 511,237 $ (736,103) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 42,807 -- 477,501 Depletion 186,035 263,308 621,592 Gain on disposition of assets (6,407) (8,848) (765) Changes in assets and liabilities: Accounts receivable (110,676) (162,539) 128,574 Accounts payable (7,786) 10,679 (21,884) ----------- ----------- ----------- Net cash provided by operating activities 1,548,222 613,837 468,915 ----------- ----------- ----------- Cash flows from investing activities: Additions to oil and gas properties (19,125) (42,098) (17,466) Proceeds from disposition of assets 10,011 9,249 15,652 ----------- ----------- ----------- Net cash used in investing activities (9,114) (32,849) (1,814) ----------- ----------- ----------- Cash flows used in financing activities: Cash distributions to partners (1,557,299) (523,756) (568,656) ----------- ----------- ----------- Net increase (decrease) in cash (18,191) 57,232 (101,555) Cash at beginning of year 339,531 282,299 383,854 ----------- ----------- ----------- Cash at end of year $ 321,340 $ 339,531 $ 282,299 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 14 837 PARKER & PARSLEY 87-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 87-A, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 15 838 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $42,807 and $477,501 related to its proved oil and gas properties during 2000 and 1998, respectively. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $254,091 less than the tax basis at December 31, 2000. 16 839 The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ----------- ----------- ----------- Net income (loss) per statements of operations $ 1,444,249 $ 511,237 $ (736,103) Intangible development costs capitalized for financial reporting purposes and expensed for tax reporting purposes -- -- (6) Depletion and depreciation provisions for tax reporting purposes less than amount for financial reporting purposes 162,602 238,819 584,799 Impairment of oil and gas properties for financial reporting purposes 42,807 -- 477,501 Salvage income 1,288 -- 13,408 Other, net (3,728) (5,120) 6,254 ----------- ----------- ----------- Net income per Federal income tax returns $ 1,647,218 $ 744,936 $ 345,853 =========== =========== ===========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- -------- --------- Development costs $ 19,125 $ 42,098 $ 17,466 ======== ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 946,545 $ 946,545 Completed wells and equipment 19,252,084 19,236,563 ----------- ----------- 20,198,629 20,183,108 Accumulated depletion (17,611,694) (17,382,852) ------------ ----------- Net oil and gas properties $ 2,586,935 $ 2,800,256 =========== ===========
17 840 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 428,017 $ 440,563 $ 442,313 Reimbursement of general and administrative expenses $ 73,296 $ 34,349 $ 33,674
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. In addition, Pioneer USA, Parker & Parsley 87-A Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships(2) ---------- --------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 175 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 87-A Conv., L.P. is 88.19604% and 11.80396%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 18 841
Oil and NGLs Gas (bbls) (mcf) ---------- ---------- Net proved reserves at January 1, 1998 1,294,911 1,949,548 Revisions (525,530) (596,528) Production (107,375) (179,494) ---------- ---------- Net proved reserves at December 31, 1998 662,006 1,173,526 Revisions 907,814 1,631,783 Production (101,441) (183,099) ---------- ---------- Net proved reserves at December 31, 1999 1,468,379 2,622,210 Revisions (35,573) (336,529) Production (97,824) (152,075) ---------- ---------- Net proved reserves at December 31, 2000 1,334,982 2,133,606 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.83 per barrel of NGLs and $7.67 per mcf of gas, discounted at 10% was approximately $10,856,000 and undiscounted was $21,368,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ---------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 45,412 $ 36,134 $ 7,206 Future production costs (24,044) (21,211) (5,635) -------- -------- -------- 21,368 14,923 1,571 10% annual discount factor (10,512) (6,959) (455) -------- -------- -------- Standardized measure of discounted future net cash flows $ 10,856 $ 7,964 $ 1,116 ======== ======== ========
19 842
For the years ended December 31, ------------------------------------ 2000 1999 1998 -------- ---------- --------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,724) $ (802) $ (385) Net changes in prices and production costs 4,989 3,587 (3,456) Revisions of estimated future development costs - - - Revisions of previous quantity estimates (618) 6,565 (652) Accretion of discount 796 111 527 Changes in production rates, timing and other (551) (2,613) (189) -------- ---------- --------- Change in present value of future net revenues 2,892 6,848 (4,155) -------- ---------- --------- Balance, beginning of year 7,964 1,116 5,271 -------- ---------- --------- Balance, end of year $ 10,856 $ 7,964 $ 1,116 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 43% 39% - Genesis Crude Oil, L.P. - - 54% Western Gas Resources, Inc. 3% 7% 29% NGTS LLC 11% 9% 1%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and NGTS LLC were $122,179 and $4,335, respectively, which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The general partner of the Partnership is Pioneer USA. Pioneer USA, the managing general partner, has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, 20 843 the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $28,811,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 844 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 22 845 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA, Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 23 846 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated approximately 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 175 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 24 847 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 428,017 $ 440,563 $ 442,313 Reimbursement of general and administrative expenses $ 73,296 $ 34,349 $ 33,674
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 25 848 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules. All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 26 849 SIGNATURES 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 87-A, LTD. Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------ Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
/s/ Scott D. Sheffield President of Pioneer USA March 29, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 29, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 29, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 29, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
27 850 PARKER & PARSLEY 87-A, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c): Exhibit No. Description Page ----------- ----------- ---- 4(a) Agreement of Limited Partnership of Parker - & Parsley 87-A, Ltd. incorporated by reference to Exhibit A of the Partnership's Registration Statement on Form S-1 (Registration No. 33-16910) (hereinafter called the Partnership's Registration Statement 4(b) Form of Subscription Agreement and Power - of Attorney incorporated by reference to Exhibit D of the Partnership's Registration Statement 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit D of the Partnership's Registration Statement 10(b) Development Program Agreement incorporated - by reference to Exhibit C of the Partnership's Registration Statement 28 851 PARKER & PARSLEY 87-A, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $1,399,068 $1,357,075 $2,845,556 $1,750,425 $1,453,492 $2,232,898 $2,627,636 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 848,304 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 42,807 $ -- $ 477,501 $ 732,890 $ 348,546 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 712,017 $ 711,395 $1,444,249 $ 511,237 $ (736,103) $ (49,528) $1,803,894 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 7,120 $ 7,114 $ 14,442 $ 5,112 $ (7,361) $ (495) $ 18,039 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 704,897 $ 704,281 $1,429,807 $ 506,125 $ (728,742) $ (49,033) $1,785,855 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 24.47 $ 24.44 $ 49.63 $ 17.57 $ (25.29) $ (1.70) $ 61.99 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 16.86 $ 26.76 $ 53.51 $ 18.00 $ 19.54 $ 42.52 $ 89.89(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $3,573,132 $3,424,009 $3,343,783 $3,464,619 $3,466,459 $4,793,102 $6,171,831 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $29.15 in 1996. 852 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 87-B, CONV., LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 87-B Conv., Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 87-B Conv., Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 853 PARKER & PARSLEY 87-B CONV., LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 4,919 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 6,156 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 1,020 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 207.73 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.68 times the past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 138.24 -- as of December 31, 2000(c) $ 138.95 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 193.19 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 201.72 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 173
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2037, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 854 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 855 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 124,834 $ 62,552 Accounts receivable - oil and gas sales 49,441 87,620 ---------- ---------- Total current assets 174,275 150,172 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 3,151,486 3,280,150 Accumulated depletion (2,631,053) (2,733,516) ---------- ---------- Net oil and gas properties 520,433 546,634 ---------- ---------- $ 694,708 $ 696,806 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 7,867 $ 6,423 Partners' capital: Managing general partner 6,854 6,889 Limited partners (4,919 interests) 679,987 683,494 ---------- ---------- 686,841 690,383 ---------- ---------- $ 694,708 $ 696,806 ========== ==========
The financial information included as of June 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. 2 856 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 93,434 $ 101,370 $ 202,782 $ 212,568 Interest 964 1,277 2,113 2,159 Gain on disposition of assets 1,426 - 5,439 919 -------- -------- -------- -------- 95,824 102,647 210,334 215,646 -------- -------- -------- -------- Costs and expenses: Oil and gas production 44,523 44,599 91,336 84,466 General and administrative 2,429 2,971 5,272 6,307 Depletion 9,737 8,786 27,896 18,236 Abandoned property 830 - 4,243 - -------- -------- -------- -------- 57,519 56,356 128,747 109,009 -------- -------- -------- -------- Net income $ 38,305 $ 46,291 $ 81,587 $ 106,637 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 383 $ 463 $ 816 $ 1,066 ======== ======== ======== ======== Limited partners $ 37,922 $ 45,828 $ 80,771 $ 105,571 ======== ======== ======== ======== Net income per limited partnership interest $ 7.71 $ 9.31 $ 16.42 $ 21.46 ======== ======== ======== ========
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. 3 857 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ----------- Balance at January 1, 2001 $ 6,889 $ 683,494 $ 690,383 Distributions (851) (84,278) (85,129) Net income 816 80,771 81,587 -------- --------- --------- Balance at June 30, 2001 $ 6,854 $ 679,987 $ 686,841 ======== ========= =========
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. 4 858 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 81,587 $ 106,637 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 27,896 18,236 Gain on disposition of assets (5,439) (919) Changes in assets and liabilities: Accounts receivable 38,179 (19,394) Accounts payable 4,421 4,658 --------- --------- Net cash provided by operating activities 146,644 109,218 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (1,695) (791) Proceeds from asset dispositions 2,462 919 --------- --------- Net cash provided by investing activities 767 128 --------- --------- Cash flows used in financing activities: Cash distributions to partners (85,129) (112,519) --------- --------- Net increase (decrease) in cash 62,282 (3,173) Cash at beginning of period 62,552 71,344 --------- --------- Cash at end of period $ 124,834 $ 68,171 ========= =========
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. 5 859 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 87-B Conv., Ltd. (the "Partnership") was organized in 1987 as a general partnership under the laws of the State of Texas and was converted to a Texas limited partnership in 1989. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Six months ended June 30, 2001 compared with six months ended June 30, 2000 Results of Operations Revenues: The Partnership's oil and gas revenues decreased 5% to $202,782 for the six months ended June 30, 2001 as compared to $212,568 for the same period in 2000. The decrease in revenues resulted from a decrease in production and a lower 6 860 average price received for oil, offset by higher average prices received for gas and NGLs. For the six months ended June 30, 2001, 4,828 barrels of oil, 1,562 barrels of natural gas liquids ("NGLs") and 8,728 mcf of gas were sold, or 7,845 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 5,308 barrels of oil, 2,838 barrels of NGLs and 11,701 mcf of gas were sold, or 10,096 BOEs. The average price received per barrel of oil decreased $.16, or 1%, from $27.30 for the six months ended June 30, 2000 to $27.14 for the same period in 2001. The average price received per barrel of NGLs increased $2.21, or 15%, from $15.08 during the six months ended June 30, 2000 to $17.29 for the same period in 2001. The average price received per mcf of gas increased 141% from $2.13 during the six months ended June 30, 2000 to $5.13 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 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 six months ended June 30, 2001. Gain on disposition of assets of $5,439 was received during the six months ended June 30, 2001 from disposal of equipment on two wells plugged and abandoned during the current period. Expenses to plug and abandon these wells were $4,243. For the six months ended June 30, 2000 a gain on disposition of assets of $919 was recognized due to credits received from the disposal of oil and gas equipment on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $128,747 for the six months ended June 30, 2001 as compared to $109,009 for the same period in 2000, an increase of $19,738, or 18%. This increase was due to increases in depletion, production costs and abandoned property costs, offset by a decrease in general and administrative expenses ("G&A"). Production costs were $91,336 for the six months ended June 30, 2001 and $84,466 for the same period in 2000, resulting in a $6,870 increase, or 8%. The increase was due to additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 16% from $6,307 for the six months ended June 30, 2000 to $5,272 for the same period in 2001, due to a lower G&A being allocated (limited to 3% of oil and gas revenues) due to lower oil revenues for the six months ended June 30, 2001 as compared to the same period in 2000. Depletion was $27,896 for the six months ended June 30, 2001 as compared to $18,236 for the same period in 2000, an increase of $9,660, or 53%. This increase was due to a downward revision to proved reserves on one significant well, offset by a decline in oil production of 480 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 7 861 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 8% to $93,434 for the three months ended June 30, 2001 as compared to $101,370 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and a decrease in production, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 2,390 barrels of oil, 858 barrels of NGLs and 4,278 mcf of gas were sold, or 3,961 BOEs. For the three months ended June 30, 2000, 2,515 barrels of oil, 1,351 barrels of NGLs and 5,264 mcf of gas were sold, or 4,743 BOEs. The average price received per barrel of oil decreased slightly from $26.86 for the three months ended June 30, 2000 to $26.73 for the same period in 2001. The average price received per barrel of NGLs increased $.42, or 3%, from $14.98 during the three months ended June 30, 2000 to $15.40 for the same period in 2001. The average price received per mcf of gas increased 47% to $3.82 during the three months ended June 30, 2001 from $2.59 during the same period in 2000. Gain on disposition of assets of $1,426 was received during the three months ended June 30, 2001 from disposal of equipment on two wells plugged and abandoned during the current period. Expenses to plug and abandon these wells were $830. Costs and Expenses: Total costs and expenses increased to $57,519 for the three months ended June 30, 2001 as compared to $56,356 for the same period in 2000, an increase of $1,163, or 2%. This increase was due to increases in depletion and abandoned property costs, offset by a decrease in G&A and production costs. Production costs were $44,523 for the three months ended June 30, 2001 and $44,599 for the same period in 2000, resulting in a $76 decrease. The decrease was due to lower well maintenance costs, offset by an increase in workover costs incurred to stimulate well production. During this period, G&A decreased 18%, from $2,971 for the three months ended June 30, 2000 to $2,429 for the same period in 2001, primarily due to a lower G&A being allocated (limited to 3% of oil and gas revenues) as a result of decreased oil and gas revenues for the three months ended June 30, 2001 as compared to the same period in 2000 and a decrease in audit and tax fees. Depletion was $9,737 for the three months ended June 30, 2001 as compared to $8,786 for the same period in 2000, an increase of $951, or 11%. This increase was primarily due to a downward revision to proved reserves on one significant well, offset by a decline in oil production of 125 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 8 862 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $37,426 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to reductions of $57,336 in working capital and $1,035 in G&A expenses, offset by a decline in oil and gas sales receipts of $9,832 and increases in production costs of $6,870 and abandoned property costs of $4,243. The decline in G&A was primarily due to less G&A being allocated (limited to 3% of oil and gas revenues) due to lower oil and gas revenues for the six months ended June 30, 2001 as compared to the same period in 2000. The decrease in oil and gas receipts resulted from a decline of $50,340 in production during 2001 as compared to the same period in 2000 and a decline in oil prices of $879, offset by an increase in gas and NGL prices of $41,387 during 2001. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production. Net Cash Provided by Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 were related to equipment upgrades on various oil and gas properties. Proceeds from disposition of assets of $2,462 and $919 were recognized during the six months ended June 30, 2001 and 2000, respectively. The proceeds recognized during the period in 2001 were from salvage income received on two wells plugged and abandoned during the current period. The proceeds recognized during the period in 2000 were primarily from equipment credits received on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $85,129, of which $851 was distributed to the managing general partner and $84,278 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $112,519, of which $1,125 was distributed to the managing general partner and $111,394 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge 9 863 with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 864 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 865 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 87-B Conv., Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 87-B Conv., Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 87-B Conv., Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 866 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---- ---- ASSETS ------ Current assets: Cash $ 62,552 $ 71,344 Accounts receivable - oil and gas sales 87,620 36,226 ----------- ----------- Total current assets 150,172 107,570 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 3,280,150 3,277,595 Accumulated depletion (2,733,516) (2,675,751) ----------- ----------- Net oil and gas properties 546,634 601,844 ----------- ----------- $ 696,806 $ 709,414 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 6,423 $ 7,274 Partners' capital: Managing general partner 6,889 7,006 Limited partners (4,919 interests) 683,494 695,134 ----------- ----------- 690,383 702,140 ----------- ----------- $ 696,806 $ 709,414 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 867 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 469,502 $ 278,326 $ 236,434 Interest 5,144 3,117 3,558 Gain on disposition of assets 1,005 -- 3,419 --------- --------- --------- 475,651 281,443 243,411 --------- --------- --------- Costs and expenses: Oil and gas production 172,228 155,029 146,967 General and administrative 13,873 8,214 7,093 Impairment of oil and gas properties 21,231 -- 48,745 Depletion 36,534 49,790 120,823 Abandoned property -- -- 965 --------- --------- --------- 243,866 213,033 324,593 --------- --------- --------- Net income (loss) $ 231,785 $ 68,410 $ (81,182) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 2,318 $ 684 $ (812) ========= ========= ========= Limited partners $ 229,467 $ 67,726 $ (80,370) ========= ========= ========= Net income (loss) per limited partnership interest $ 46.65 $ 13.77 $ (16.34) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 868 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- --------- --------- Partners' capital at January 1, 1998 $ 9,098 $ 902,134 $ 911,232 Distributions (1,056) (104,488) (105,544) Net loss (812) (80,370) (81,182) --------- --------- --------- Partners' capital at December 31, 1998 7,230 717,276 724,506 Distributions (908) (89,868) (90,776) Net income 684 67,726 68,410 --------- --------- --------- Partners' capital at December 31, 1999 7,006 695,134 702,140 Distributions (2,435) (241,107) (243,542) Net income 2,318 229,467 231,785 --------- --------- --------- Partners' capital at December 31, 2000 $ 6,889 $ 683,494 $ 690,383 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 5 869 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 231,785 $ 68,410 $ (81,182) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 21,231 -- 48,745 Depletion 36,534 49,790 120,823 Gain on disposition of assets (1,005) -- (3,419) Changes in assets and liabilities: Accounts receivable (51,394) (7,809) 15,837 Accounts payable (851) 2,071 (4,734) --------- --------- --------- Net cash provided by operating activities 236,300 112,462 96,070 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (2,609) (4,857) (5,631) Proceeds from disposition of assets 1,059 1,226 3,419 --------- --------- --------- Net cash used in investing activities (1,550) (3,631) (2,212) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (243,542) (90,776) (105,544) --------- --------- --------- Net increase (decrease) in cash (8,792) 18,055 (11,686) Cash at beginning of year 71,344 53,289 64,975 --------- --------- --------- Cash at end of year $ 62,552 $ 71,344 $ 53,289 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 870 PARKER & PARSLEY 87-B CONV., LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 87-B Conv., Ltd. (the "Partnership") was organized in 1987 as a general partnership under the laws of the State of Texas and was converted to a Texas limited partnership in 1989. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 871 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $21,231 and $48,745 related to its proved oil and gas properties during 2000 and 1998, respectively. 8 872 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $63,837 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 231,785 $ 68,410 $(81,182) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 33,614 47,165 116,988 Impairment of oil and gas properties for financial reporting purposes 21,231 -- 48,745 Other, net (643) (5,995) (1,248) --------- --------- --------- Net income per Federal income tax returns $ 285,987 $ 109,580 $ 83,303 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- --------- --------- Development costs $ 2,609 $ 4,857 $ 5,631 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 --------- --------- Proved properties: Property acquisition costs $ 135,396 $ 135,396 Completed wells and equipment 3,144,754 3,142,199 --------- --------- 3,280,150 3,277,595 Accumulated depletion (2,733,516) (2,675,751) ---------- ---------- Net oil and gas properties $ 546,634 $ 601,844 ========== ==========
9 873 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ------- ------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $74,535 $73,744 $71,600 Reimbursement of general and administrative expenses $12,385 $ 5,720 $ 5,800
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, Parker & Parsley 87-B, Ltd. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) -------------- ---------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 10 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 87-B, Ltd. is 19.66971% and 80.33029%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) -------- -------- Net proved reserves at January 1, 1998 230,505 316,120 Revisions (76,948) (70,310) Production (17,879) (25,477) -------- -------- Net proved reserves at December 31, 1998 135,678 220,333 Revisions 155,187 272,717 Production (16,758) (24,436) -------- -------- Net proved reserves at December 31, 1999 274,107 468,614 Revisions (9,351) (76,076) Production (16,015) (23,682) -------- -------- Net proved reserves at December 31, 2000 248,741 368,856 ======== ========
10 874 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.26 per barrel of NGLs and $7.62 per mcf of gas, discounted at 10% was approximately $1,851,000 and undiscounted was $3,947,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ---------------------------------- 2000 1999 1998 ---- ---- ---- (in thousands) Oil and gas producing activities: Future cash inflows $ 8,237 $ 6,760 $ 1,480 Future production costs (4,290) (3,786) (1,130) ------- ------- ------- 3,947 2,974 350 10% annual discount factor (2,096) (1,454) (110) ------- ------- ------- Standardized measure of discounted future net cash flows $ 1,851 $ 1,520 $ 240 ======= ======= =======
11 875
For the years ended December 31, ------------------------------------ 2000 1999 1998 ---- ---- ---- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (297) $ (123) $ (89) Net changes in prices and production costs 795 742 (585) Revisions of previous quantity estimates (143) 1,162 (100) Accretion of discount 152 24 94 Changes in production rates, timing and other (176) (525) (21) -------- --------- -------- Change in present value of future net revenues 331 1,280 (701) -------- --------- -------- Balance, beginning of year 1,520 240 941 -------- --------- -------- Balance, end of year $ 1,851 $ 1,520 $ 240 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 49% 50% - Genesis Crude Oil, L.P. 2% 1% 57% Western Gas Resources, Inc. 4% 6% 26% Phillips Petroleum Company 16% - -
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and Phillips Petroleum Company were $23,391 and $10,443, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 12 876 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $4,919,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 877 PARKER & PARSLEY 87-B CONV., LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 69% to $469,502 for 2000 as compared to $278,326 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 10,352 barrels of oil, 5,663 barrels of natural gas liquids ("NGLs") and 23,682 mcf of gas were sold, or 19,962 barrel of oil equivalents ("BOEs"). In 1999, 10,784 barrels of oil, 5,974 barrels of NGLs and 24,436 mcf of gas were sold, or 20,831 BOEs. 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 increased $12.60, or 75%, from $16.71 in 1999 to $29.31 in 2000. The average price received per barrel of NGLs increased $7.17, or 74%, from $9.73 in 1999 to $16.90 in 2000. The average price received per mcf of gas increased 82% from $1.64 in 1999 to $2.98 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $1,005, recognized during 2000, was attributable to credits received from the disposal of oil and gas equipment on one fully depleted well. Total costs and expenses increased in 2000 to $243,866 as compared to $213,033 in 1999, an increase of $30,833, or 14%. The increase was primarily due to the impairment of oil and gas properties and increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $172,228 in 2000 and $155,029 in 1999, resulting in a $17,199 increase, or 11%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production, offset by a decline in workover expenses. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 69% from $8,214 in 1999 to $13,873 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $12,385 in 2000 and $5,720 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $21,231 related to its oil and gas properties during 2000. Depletion was $36,534 in 2000 as compared to $49,790 in 1999, representing a decrease of $13,256, or 27%. This decrease was primarily due to a 2,194 barrels of oil increase in proved reserves during 2000 as a result of higher commodity 878 prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 18% to $278,326 from $236,434 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 10,784 barrels of oil, 5,974 barrels of NGLs and 24,436 mcf of gas were sold, or 20,831 BOEs. In 1998, 12,040 barrels of oil, 5,839 barrels of NGLs and 25,477 mcf of gas were sold, or 22,125 BOEs. The average price received per barrel of oil increased $3.54, or 27%, from $13.17 in 1998 to $16.71 in 1999. The average price received per barrel of NGLs increased $2.91, or 43%, from $6.82 in 1998 to $9.73 in 1999. The average price received per mcf of gas increased 10% from $1.49 in 1998 to $1.64 in 1999. A gain on disposition of assets of $3,419 was recognized during 1998 from the sale of oil and gas equipment on one well abandoned in a prior year. Abandoned property costs of $965 in 1998 were related to this abandonment. Total costs and expenses decreased in 1999 to $213,033 as compared to $324,593 in 1998, a decrease of $111,560, or 34%. The decrease was primarily due to declines in depletion, the impairment of oil and gas properties and abandoned property costs, offset by increases in production costs and G&A. Production costs were $155,029 in 1999 and $146,967 in 1998, resulting in an $8,062 increase, or 5%. The increase was due to increases in well maintenance costs and workover costs incurred to stimulate well production, offset by a decline in ad valorem taxes. During this period, G&A increased 16% from $7,093 in 1998 to $8,214 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $5,720 in 1999 and $5,800 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $48,745 related to its oil and gas properties during 1998. Depletion was $49,790 in 1999 compared to $120,823 in 1998, representing a decrease of $71,033, or 59%. This decrease was the result of a 92,485 barrels of oil increase in proved reserves during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 1,256 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum Industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 879 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $123,838 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $193,203, offset by increases in production costs paid of $17,199, G&A expenses paid of $5,659 and working capital of $46,507. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $213,360 to oil and gas receipts, offset by $20,157 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production, offset by a decline in workover expense. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 were related to expenditures for oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $1,059 were comprised of $1,005 received from salvage income on one fully depleted well and $54 from equipment credits received on one active well. Proceeds of $1,226 received during 1999 were from equipment credits received on one temporarily abandoned well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $243,542, of which $2,435 was distributed to the managing general partner and $241,107 to the limited partners. In 1999, cash distributions to the partners were $90,776, of which $908 was distributed to the managing general partner and $89,868 to the limited partners. 880 PARKER & PARSLEY 87-B CONV., LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 202,782 $ 212,568 $ 469,502 $ 278,326 $ 236,434 $ 345,942 $ 422,550 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 21,231 $ -- $ 48,745 $ 188,163 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 144,643 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 81,587 $ 106,637 $ 231,785 $ 68,410 $ (81,182) $ (85,292) $ 293,575 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 816 $ 1,066 $ 2,318 $ 684 $ (812) $ (853) $ 2,936 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 80,771 $ 105,571 $ 229,467 $ 67,726 $ (80,370) $ (84,439) $ 290,639 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 16.42 $ 21.46 $ 46.65 $ 13.77 $ (16.34) $ (17.17) $ 59.08 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 17.13 $ 22.65 $ 49.02 $ 18.27 $ 21.24 $ 35.81 $ 87.22(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 694,708 $ 708,190 $ 696,806 $ 709,414 $ 729,709 $ 921,169 $1,202,384 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $29.40 in 1996. 881 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 87-B, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 87-B, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 87-B, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 882 PARKER & PARSLEY 87-B, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 20,089 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 25,142 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 4,166 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 207.86 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.68 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 138.40 -- as of December 31, 2000 (c) $ 139.11 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 193.32 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 201.85 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 173 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as any value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2037, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 883 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, 2001 Commission File No. 33-12244-02 PARKER & PARSLEY 87-B, LTD. (Exact name of Registrant as specified in its charter) Texas 75-2185706 --------------------------------------------- --------------------- (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 / / 884 PARKER & PARSLEY 87-B, LTD. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................. 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................. 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000............................... 6 Notes to Financial Statements.......................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K....................... 11 Signatures............................................. 12 2 885 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 511,824 $ 257,845 Accounts receivable - oil and gas sales 201,924 357,836 ----------- ----------- Total current assets 713,748 615,681 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 12,870,546 13,396,004 Accumulated depletion (10,744,417) (11,162,910) ----------- ----------- Net oil and gas properties 2,126,129 2,233,094 ----------- ----------- $ 2,839,877 $ 2,848,775 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 31,516 $ 25,998 Partners' capital: Managing general partner 28,011 28,156 Limited partners (20,089 interests) 2,780,350 2,794,621 ----------- ----------- 2,808,361 2,822,777 ----------- ----------- $ 2,839,877 $ 2,848,775 =========== ===========
The financial information included as of June 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. 3 886 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 381,569 $ 414,169 $ 828,175 $ 868,113 Interest 3,969 5,225 8,639 8,911 Gain on disposition of assets 5,825 - 22,214 3,753 -------- -------- -------- -------- 391,363 419,394 859,028 880,777 -------- -------- -------- -------- Costs and expenses: Oil and gas production 181,811 182,083 373,020 344,924 General and administrative 9,921 12,425 21,533 26,043 Depletion 39,698 35,965 113,888 74,516 Abandoned property 3,397 - 17,332 - -------- -------- -------- -------- 234,827 230,473 525,773 445,483 -------- -------- -------- -------- Net income $ 156,536 $ 188,921 $ 333,255 $ 435,294 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,565 $ 1,889 $ 3,332 $ 4,353 ======== ======== ======== ======== Limited partners $ 154,971 $ 187,032 $ 329,923 $ 430,941 ======== ======== ======== ======== Net income per limited partnership interest $ 7.71 $ 9.31 $ 16.42 $ 21.45 ======== ======== ======== ========
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. 4 887 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 28,156 $2,794,621 $2,822,777 Distributions (3,477) (344,194) (347,671) Net income 3,332 329,923 333,255 -------- --------- --------- Balance at June 30, 2001 $ 28,011 $2,780,350 $2,808,361 ======== ========= =========
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. 5 888 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 333,255 $ 435,294 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 113,888 74,516 Gain on disposition of assets (22,214) (3,753) Changes in assets and liabilities: Accounts receivable 155,912 (47,216) Accounts payable 17,677 18,891 --------- --------- Net cash provided by operating activities 598,518 477,732 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (6,924) (3,228) Proceeds from asset dispositions 10,056 3,753 --------- --------- Net cash provided by investing activities 3,132 525 --------- --------- Cash flows used in financing activities: Cash distributions to partners (347,671) (459,528) --------- --------- Net increase in cash 253,979 18,729 Cash at beginning of period 257,845 262,756 --------- --------- Cash at end of period $ 511,824 $ 281,485 ========= =========
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. 6 889 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 87-B, 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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, Texas 75039-3746. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $828,175 for the six months ended June 30, 2001 as compared to $868,113 for the same period in 2000. The decrease in revenues resulted from a decline in production and a decrease in the average price received for oil, offset by higher average prices received for 7 890 gas and NGLs. For the six months ended June 30, 2001, 19,714 barrels of oil, 6,385 barrels of natural gas liquids ("NGLs") and 35,640 mcf of gas were sold, or 32,039 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 21,676 barrels of oil, 11,585 barrels of NGLs and 47,808 mcf of gas were sold, or 41,229 BOEs. The average price received per barrel of oil decreased $.16, or 1%, from $27.30 for the six months ended June 30, 2000 to $27.14 for the same period in 2001. The average price received per barrel of NGLs increased $2.21, or 15%, from $15.08 during the six months ended June 30, 2000 to $17.29 for the same period in 2001. The average price received per mcf of gas increased 141% from $2.13 during the six months ended June 30, 2000 to $5.13 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 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 six months ended June 30, 2001. Gain on disposition of assets of $22,214 was received during the six months ended June 30, 2001 from disposal of equipment on two wells plugged and abandoned during the current period. Expenses to plug and abandon these wells were $17,332. For the six months ended June 30, 2000 a gain on disposition of assets of $3,753 was recognized due to credits received from the disposal of oil and gas equipment on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $525,773 for the six months ended June 30, 2001 as compared to $445,483 for the same period in 2000, an increase of $80,290, or 18%. This increase was due to increases in depletion, production costs and abandoned property costs, offset by a decline in general and administrative expenses ("G&A"). Production costs were $373,020 for the six months ended June 30, 2001 and $344,924 for the same period in 2000 resulting in a $28,096 increase, or 8%. This increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 17% from $26,043 for the six months ended June 30, 2000 to $21,533 from the same period in 2001, primarily due to less G&A being allocated (limited to 3% of oil and gas revenues) due to lower oil and gas revenues for the six months ended June 30, 2001 as compared to the same period in 2000. Depletion was $113,888 for the six months ended June 30, 2001 as compared to $74,516 for the same period in 2000, an increase of $39,372, or 53%. This increase was due to a downward revision to proved reserves on one significant well, offset by a decline in oil production of 1,962 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 8 891 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 8% to $381,569 for the three months ended June 30, 2001 as compared to $414,169 for the same period in 2000. The decrease in revenues resulted from a decrease in production and a decline in the average price received for oil, offset by an increase in the average prices received for gas and NGLs. For the three months ended June 30, 2001, 9,762 barrels of oil, 3,497 barrels of NGLs and 17,474 mcf of gas were sold, or 16,171 BOEs. For the three months ended June 30, 2000, 10,284 barrels of oil, 5,499 barrels of NGLs and 21,477 mcf of gas were sold, or 19,363 BOEs. The average price received per barrel of oil decreased slightly from $26.86 during the three months ended June 30, 2000 to $26.73 for the same period in 2001. The average price received per barrel of NGLs increased $.42, or 3%, from $14.98 during the three months ended June 30, 2000 to $15.40 for the same period in 2001. The average price received per mcf of gas increased 47% from $2.59 during the three months ended June 30, 2000 to $3.82 for the same period in 2001. Gain on disposition of assets of $5,825 was received during the three months ended June 30, 2001 from disposal of equipment on two wells plugged and abandoned during the current period. Expenses to plug and abandon these wells were $3,397. Costs and Expenses: Total costs and expenses increased to $234,827 for the three months ended June 30, 2001 as compared to $230,473 for the same period in 2000, an increase of $4,354, or 2%. This increase was due to increases in depletion and abandoned property costs, offset by decreases in G&A and production costs. Production costs were $181,811 for the three months ended June 30, 2001 and $182,083 for the same period in 2000 resulting in a $272 decrease. This decrease was primarily due to lower well maintenance costs, offset by an increase in workover costs incurred to stimulate well production. During this period, G&A decreased 20%, from $12,425 for the three months ended June 30, 2000 to $9,921 for the same period in 2001, primarily due to less G&A being allocated (limited to 3% of oil and gas revenues) due to lower oil and gas revenues for the three months ended June 30, 2001 as compared to the same period in 2000 and a decrease in audit and tax fees. Depletion was $39,698 for the three months ended June 30, 2001 as compared to $35,965 for the same period in 2000, an increase of $3,733, or 10%. This increase was primarily due to a downward revision to proved reserves on one significant well, offset by a decline in oil production of 522 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 9 892 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $120,786 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to reductions of $201,914 in working capital and $4,510 in G&A expenses, offset by a decline in oil and gas sales receipts of $40,210 and increases in production costs of $28,096 and abandoned property costs of $17,332. The decrease in G&A was primarily due to less G&A being allocated (limited to 3% of oil and gas revenues) due to lower oil and gas revenues for the six months ended June 30, 2001 as compared to the same period in 2000. The decrease in oil and gas receipts resulted from a decline of $205,527 in production during 2001 as compared to the same period in 2000 and a decline in oil prices of $3,615, offset by an increase in gas and NGL prices of $168,932 during 2001. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production. Net Cash Provided by Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for oil and gas equipment upgrades on active properties. Proceeds from disposition of assets of $10,056 and $3,753 were recognized during the six months ended June 30, 2001 and 2000, respectively. Proceeds recognized during the period in 2001 were due to salvage income received on two wells plugged and abandoned during the current period. Proceeds recognized during the period in 2000 were from equipment credits received on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $347,671, of which $3,477 was distributed to the managing general partner and $344,194 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $459,528, of which $4,595 was distributed to the managing general partner and $454,933 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge 10 893 with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 894 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) SIGNATURES 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 87-B, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 8, 2001 By: /s/ Rich Dealy ------------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 895 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-12244-02 PARKER & PARSLEY 87-B, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-2185706 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $20,044,000. As of March 8, 2001, the number of outstanding limited partnership interests was 20,089. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 896 PART I ITEM 1. BUSINESS Parker & Parsley 87-B, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 20,089 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 49% and 16% was attributable to sales made to Plains Marketing, L.P. and Phillips Petroleum Company. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 897 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located in Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 64 oil and gas wells. At December 31, 2000, 49 wells were producing; one well was a dry hole from a previous year; five wells have been plugged and abandoned and nine wells were sold. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 898 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 20,089 outstanding limited partnership interests held of record by 1,468 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $984,669 and $367,015, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Operating results: ------------------ Oil and gas sales $1,917,791 $1,136,700 $ 965,599 $1,412,905 $1,725,580 ========== ========== ========== ========== ========== Gain on litigation settlement, net $ - $ - $ - $ - $ 590,715 ========== ========== ========== ========== ========== Impairment of oil and gas properties $ 86,674 $ - $ 199,037 $ 768,208 $ - ========== ========== ========== ========== ========== Net income (loss) $ 945,927 $ 279,094 $ (331,789) $ (347,350) $1,199,153 ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 9,459 $ 2,791 $ (3,318) $ (3,473) $ 11,992 ========== ========== ========== ========== ========== Limited partners $ 936,468 $ 276,303 $ (328,471) $ (343,877) $1,187,161 ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 46.62 $ 13.75 $ (16.35) $ (17.12) $ 59.10 ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 49.02 $ 18.27 $ 21.24 $ 35.83 $ 87.23 (a) ========== ========== ========== ========== ========== At year end: ------------ Identifiable assets $2,848,775 $2,900,940 $2,984,346 $3,766,001 $4,914,489 ========== ========== ========== ========== ==========
--------------- (a) Including litigation settlement per limited partnership interest of $29.11 in 1996. 4 899 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 69% to $1,917,791 for 2000 as compared to $1,136,700 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 42,280 barrels of oil, 23,121 barrels of natural gas liquids ("NGLs") and 96,740 mcf of gas were sold, or 81,524 barrel of oil equivalents ("BOEs"). In 1999, 44,029 barrels of oil, 24,404 barrels of NGLs and 99,771 mcf of gas were sold, or 85,062 BOEs. Due to the decline characteristics of the Partnership's oil and gas properties, management expects a certain amount of decline in production to continue in the future until the Partnership's economically recoverable reserves are fully depleted. The average price received per barrel of oil increased $12.60, or 75%, from $16.71 in 1999 to $29.31 in 2000. The average price received per barrel of NGLs increased $7.17, or 74%, from $9.73 in 1999 to $16.90 in 2000. The average price received per mcf of gas increased 82% from $1.64 in 1999 to $2.98 in 2000. The market price received for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $4,102, recognized during 2000, was attributable to credits received from the disposal of oil and gas equipment on one fully depleted well. Total costs and expenses increased in 2000 to $997,051 as compared to $870,434 in 1999, an increase of $126,617, or 15%. The increase was primarily due to the impairment of oil and gas properties and increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $703,352 in 2000 and $633,091 in 1999, resulting in an increase of $70,261, or 11%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate production, offset by a decline in workover expenses. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 69% from $34,237 in 1999 to $57,746 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $50,579 in 2000 and $23,361 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated 5 900 to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $86,674 related to its oil and gas properties during 2000. Depletion was $149,279 in 2000 compared to $203,106 in 1999, representing a decrease of $53,827, or 27%. The decrease was primarily due to an 8,836 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 18% to $1,136,700 from $965,599 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 44,029 barrels of oil, 24,404 barrels of NGLs and 99,771 mcf of gas were sold, or 85,062 BOEs. In 1998, 49,182 barrels of oil, 23,854 barrels of NGLs and 104,072 mcf of gas were sold, or 90,381 BOEs. The average price received per barrel of oil increased $3.54, or 27%, from $13.17 in 1998 to $16.71 in 1999. The average price received per barrel of NGLs increased $2.91, or 43%, from $6.82 in 1998 to $9.73 in 1999. The average price received per mcf of gas increased 10% from $1.49 in 1998 to $1.64 in 1999. A gain on disposition of assets of $13,965 was received during 1998 from the sale of oil and gas equipment on one well abandoned in a prior year. Abandoned property costs of $3,943 were incurred in 1998. These costs were attributable to the plugging and abandonment of one uneconomical well in a prior year. Total costs and expenses decreased in 1999 to $870,434 as compared to $1,326,204 in 1998, a decrease of $455,770, or 34%. The decrease was due to declines in depletion, the impairment of oil and gas properties and abandoned property costs, offset by increases in production costs and G&A. Production costs were $633,091 in 1999 and $600,702 in 1998, resulting in a $32,389 increase, or 5%. The increase was due to increases in well maintenance costs and workover costs incurred to stimulate well production, offset by a decline in ad valorem taxes. During this period, G&A increased 18% from $28,968 in 1998 to $34,237 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $23,361 in 1999 and $23,688 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $199,037 related to its oil and gas 6 901 properties during 1998. Depletion was $203,106 in 1999 compared to $493,554 in 1998. This represented a decrease of $290,448, or 59%. The decrease was the result of a combination of factors that included an increase in proved reserves of 377,754 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 5,153 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $569,152 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $789,348, offset by increases in production costs paid of $70,261, G&A expenses paid of $23,509 and working capital of $126,426. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $871,310 to oil and gas receipts, offset by $81,962 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production, offset by a decline in workover expenses. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 were related to expenditures for oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $4,326 and $5,007 were received during 2000 and 1999, respectively. The proceeds of $4,326 were due to $4,102 salvage income on one fully depleted well 7 902 and the remaining $224 on equipment credits received on an active well. The proceeds of $5,007 were due to equipment credits received on one temporarily abandoned well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $994,615, of which $9,946 was distributed to the managing general partner and $984,669 to the limited partners. In 1999, cash distributions to the partners were $370,722, of which $3,707 was distributed to the managing general partner and $367,015 to the limited partners. 8 903 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 87-B, Ltd: Independent Auditors' Report......................................................... 10 Balance Sheets as of December 31, 2000 and 1999...................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 14 Notes to Financial Statements........................................................ 15
9 904 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 87-B, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley 87-B, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 87-B, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 10 905 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------------ ----------- ASSETS ------ Current assets: Cash $ 257,845 $ 262,756 Accounts receivable - oil and gas sales 357,836 179,571 ------------ ----------- Total current assets 615,681 442,327 ------------ ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 13,396,004 13,385,570 Accumulated depletion (11,162,910) (10,926,957) ------------ ----------- Net oil and gas properties 2,233,094 2,458,613 ------------ ----------- $ 2,848,775 $ 2,900,940 ============ =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 25,998 $ 29,475 Partners' capital: Managing general partner 28,156 28,643 Limited partners (20,089 interests) 2,794,621 2,842,822 ------------ ----------- 2,822,777 2,871,465 ------------ ----------- $ 2,848,775 $ 2,900,940 ============ ===========
The accompanying notes are an integral part of these financial statements. 11 906 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ---------- ---------- ---------- Revenues: Oil and gas $1,917,791 $1,136,700 $ 965,599 Interest 21,085 12,828 14,851 Gain on disposition of assets 4,102 - 13,965 ---------- ---------- ---------- 1,942,978 1,149,528 994,415 ---------- ---------- ---------- Costs and expenses: Oil and gas production 703,352 633,091 600,702 General and administrative 57,746 34,237 28,968 Impairment of oil and gas properties 86,674 - 199,037 Depletion 149,279 203,106 493,554 Abandoned property - - 3,943 ---------- ---------- ---------- 997,051 870,434 1,326,204 ---------- ---------- ---------- Net income (loss) $ 945,927 $ 279,094 $ (331,789) ========== ========== ========== Allocation of net income (loss): Managing general partner $ 9,459 $ 2,791 $ (3,318) ========== ========== ========== Limited partners $ 936,468 $ 276,303 $ (328,471) ========== ========== ========== Net income (loss) per limited partnership interest $ 46.62 $ 13.75 $ (16.35) ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 12 907 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 37,187 $3,688,711 $3,725,898 Distributions (4,310) (426,706) (431,016) Net loss (3,318) (328,471) (331,789) ----------- ----------- ----------- Partners' capital at December 31, 1998 29,559 2,933,534 2,963,093 Distributions (3,707) (367,015) (370,722) Net income 2,791 276,303 279,094 ----------- ----------- ----------- Partners' capital at December 31, 1999 28,643 2,842,822 2,871,465 Distributions (9,946) (984,669) (994,615) Net income 9,459 936,468 945,927 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 28,156 $2,794,621 $2,822,777 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 13 908 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 945,927 $ 279,094 $(331,789) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 86,674 - 199,037 Depletion 149,279 203,106 493,554 Gain on disposition of assets (4,102) - (13,965) Changes in assets and liabilities: Accounts receivable (178,265) (63,538) 64,682 Accounts payable (3,477) 8,222 (18,850) --------- --------- --------- Net cash provided by operating activities 996,036 426,884 392,669 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (10,658) (19,835) (22,998) Proceeds from disposition of assets 4,326 5,007 13,965 --------- --------- --------- Net cash used in investing activities (6,332) (14,828) (9,033) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (994,615) (370,722) (431,016) --------- --------- --------- Net increase (decrease) in cash (4,911) 41,334 (47,380) Cash at beginning of year 262,756 221,422 268,802 --------- --------- --------- Cash at end of year $ 257,845 $ 262,756 $ 221,422 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 14 909 PARKER & PARSLEY 87-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 87-B, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the 15 910 respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $86,674 and $199,037 related to its proved oil and gas properties during 2000 and 1998, respectively. NOTE 4. INCOME TAXES 16 911 The financial statement basis of the Partnership's net assets and liabilities was $261,429 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ---------- -------- --------- Net income (loss) per statements of operations $ 945,927 $279,094 $(331,789) Intangible development costs capitalized for financial reporting purposes and expensed for tax reporting purposes -- (273) (5) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 137,352 192,661 477,912 Impairment of oil and gas properties for financial reporting purposes 86,674 -- 199,037 Loss on sale of assets for tax reporting purposes greater than amounts for financial reporting purposes -- (25,328) -- Other, net (2,628) 2,156 (4,671) ---------- -------- --------- Net income per Federal income tax returns $1,167,325 $448,310 $ 340,484 ========== ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ---------- -------- --------- Development costs $ 10,658 $ 19,835 $ 22,998 ========== ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 552,956 $ 552,956 Completed wells and equipment 12,843,048 12,832,614 ----------- ----------- 13,396,004 13,385,570 Accumulated depletion (11,162,910) (10,926,957) ----------- ----------- Net oil and gas properties $ 2,233,094 $ 2,458,613 =========== ===========
17 912 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ---------- -------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 304,400 $ 301,167 $ 292,411 Reimbursement of general and administrative expenses $ 50,579 $ 23,361 $ 23,688
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. In addition, Pioneer USA, Parker & Parsley 87-B Conv., Ltd. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) ---------- ---------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 45 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 87-B Conv., Ltd. is 80.33029% and 19.66971%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 18 913
Oil and NGLs Gas (bbls) (mcf) ------------ ------------- Net proved reserves at January 1, 1998 941,555 1,291,273 Revisions (314,311) (287,194) Production (73,036) (104,072) ----------- ------------ Net proved reserves at December 31, 1998 554,208 900,007 Revisions 633,879 1,113,934 Production (68,433) (99,771) ----------- ------------ Net proved reserves at December 31, 1999 1,119,654 1,914,170 Revisions (38,404) (311,039) Production (65,401) (96,740) ----------- ------------ Net proved reserves at December 31, 2000 1,015,849 1,506,391 =========== ============
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.26 per barrel of NGLs and $7.62 per mcf of gas, discounted at 10% was approximately $7,561,000 and undiscounted was $16,119,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (in thousands) Oil and gas producing activities: Future cash inflows $ 33,638 $ 27,613 $ 6,049 Future production costs (17,519) (15,463) (4,620) ---------- ---------- ---------- 16,119 12,150 1,429 10% annual discount factor (8,558) (5,940) (449) ---------- ---------- ---------- Standardized measure of discounted future net cash flows $ 7,561 $ 6,210 $ 980 ========== ========== ==========
19 914
For the years ended December 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,214) $ (504) $ (365) Net changes in prices and production costs 3,247 3,033 (2,391) Revisions of estimated future development costs - - - Revisions of previous quantity estimates (587) 4,749 (410) Accretion of discount 621 98 385 Changes in production rates, timing and other (716) (2,146) (87) ---------- ----------- ---------- Change in present value of future net revenues 1,351 5,230 (2,868) ---------- ----------- ---------- Balance, beginning of year 6,210 980 3,848 ---------- ----------- ---------- Balance, end of year $ 7,561 $ 6,210 $ 980 ========== =========== ==========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 ---- ---- ---- Plains Marketing, L.P. 49% 50% - Genesis Crude Oil, L.P. 2% - 57% Western Gas Resources, Inc. 4% 6% 26% Phillips Petroleum Company 16% 9% 8%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and Phillips Petroleum Company were $95,526 and $42,656, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 20 915 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $20,089,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 916 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 22 917 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 23 918 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated approximately 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 45 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 24 919
2000 1999 1998 ---- ---- ---- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $304,400 $ 301,167 $292,411 Reimbursement of general and administrative expenses $ 50,579 $ 23,361 $ 23,688
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 25 920 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 26 921 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 87-B, LTD. Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ----------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 28, 2001 ---------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 28, 2001 ---------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001 ---------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 28, 2001 ---------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 28, 2001 ---------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 28, 2001 ---------------------------- Officer of Pioneer USA Rich Dealy
27 922 PARKER & PARSLEY 87-B, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 4(a) Agreement of Limited Partnership of Parker - & Parsley 87-B, Ltd. incorporated by reference to Exhibit A of the Partnership's Registration Statement on Form S-1 (Registration No. 33-16910) (hereinafter called the Partnership's Registration Statement 4(b) Form of Subscription Agreement and Power - of Attorney incorporated by reference to Exhibit D of the Partnership's Registration Statement 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit D of the Partnership's Registration Statement 10(b) Development Program Agreement incorporated - by reference to Exhibit C of the Partnership's Registration Statement
28 923 PARKER & PARSLEY 87-B, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 828,175 $ 868,113 $1,917,791 $1,136,700 $ 965,599 $1,412,905 $1,725,580 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 590,715 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 86,674 $ -- $ 199,037 $ 768,208 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 333,255 $ 435,294 $ 945,927 $ 279,094 $ (331,789) $ (347,350) $1,199,153 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,332 $ 4,353 $ 9,459 $ 2,791 $ (3,318) $ (3,473) $ 11,992 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 329,923 $ 430,941 $ 936,468 $ 276,303 $ (328,471) $ (343,877) $1,187,161 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 16.42 $ 21.45 $ 46.62 $ 13.75 $ (16.35) $ (17.12) $ 59.10 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 17.13 $ 22.65 $ 49.02 $ 18.27 $ 21.24 $ 35.83 $ 87.23(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $2,839,877 $2,895,597 $2,848,775 $2,900,940 $2,984,346 $3,766,001 $4,914,489 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $29.11 in 1996. 924 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Producing Properties 87-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Producing Properties 87-A, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on From 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 925 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 12,213 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 12,217 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 2,589 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 212.75 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.12 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 97.65 -- as of December 31, 2000 (c) $ 90.89 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 195.89 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 206.62 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment (f) --
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Not applicable. Since this partnership purchased producing properties, there were no intangible drilling and development costs nor any related write-off for tax purposes. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2037, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 926 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, 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 / / 927 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000....................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000...................... 4 Statement of Partners' Capital for the six months ended June 30, 2001...................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................... 6 Notes to Financial Statements.............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K........................... 11 Signatures................................................. 12
2 928 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 341,227 $ 182,206 Accounts receivable - oil and gas sales 243,058 296,053 ---------- ---------- Total current assets 584,285 478,259 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,500,277 5,701,037 Accumulated depletion (4,847,421) (5,019,550) ---------- ---------- Net oil and gas properties 652,856 681,487 ---------- ---------- $ 1,237,141 $ 1,159,746 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 31,206 $ 37,242 Partners' capital: Managing general partner 13,300 12,466 Limited partners (24,426 interests) 1,192,635 1,110,038 ---------- ---------- 1,205,935 1,122,504 ---------- ---------- $ 1,237,141 $ 1,159,746 ========== ==========
The financial information included as of June 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. 3 929 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 324,594 $ 329,057 $ 708,005 $ 695,926 Interest 3,151 4,213 6,647 7,149 Gain on disposition of assets 11,917 8,716 39,237 24,345 -------- -------- -------- -------- 339,662 341,986 753,889 727,420 -------- -------- -------- -------- Costs and expenses: Oil and gas production 163,644 200,770 333,829 359,931 General and administrative 12,473 9,872 23,975 20,878 Depletion 14,729 15,068 29,881 33,217 Abandoned property 5,192 286 17,463 13,069 -------- -------- -------- -------- 196,038 225,996 405,148 427,095 -------- -------- -------- -------- Net income $ 143,624 $ 115,990 $ 348,741 $ 300,325 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,436 $ 1,160 $ 3,487 $ 3,003 ======== ======== ======== ======== Limited partners $ 142,188 $ 114,830 $ 345,254 $ 297,322 ======== ======== ======== ======== Net income per limited partnership interest $ 5.82 $ 4.70 $ 14.13 $ 12.17 ======== ======== ======== ========
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. 4 930 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 12,466 $1,110,038 $1,122,504 Distributions (2,653) (262,657) (265,310) Net income 3,487 345,254 348,741 --------- --------- --------- Balance at June 30, 2001 $ 13,300 $1,192,635 $1,205,935 ========= ========= =========
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. 5 931 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 348,741 $ 300,325 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 29,881 33,217 Gain on disposition of assets (39,237) (24,345) Changes in assets and liabilities: Accounts receivable 52,995 (43,526) Accounts payable 9,767 197 --------- --------- Net cash provided by operating activities 402,147 265,868 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (1,249) (3,387) Proceeds from asset dispositions 23,433 34,391 --------- --------- Net cash provided by investing activities 22,184 31,004 --------- --------- Cash flows used in financing activities: Cash distributions to partners (265,310) (301,342) --------- --------- Net increase (decrease) in cash 159,021 (4,470) Cash at beginning of period 182,206 170,538 --------- --------- Cash at end of period $ 341,227 $ 166,068 ========= =========
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. 6 932 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 2% to $708,005 for the six months ended June 30, 2001 as compared to $695,926 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decline in production and lower average prices received for oil. For the six months ended June 30, 2001, 20,840 barrels of oil, 3,745 7 933 barrels of natural gas liquids ("NGLs") and 24,458 mcf of gas were sold, or 28,661 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 21,685 barrels of oil, 4,984 barrels of NGLs and 22,894 mcf of gas were sold, or 30,485 BOEs. The average price received per barrel of oil decreased $.19, or 1%, from $27.33 for the six months ended June 30, 2000 to $27.14 for the same period in 2001. The average price received per barrel of NGLs increased $.43, or 4%, from $11.41 during the six months ended June 30, 2000 to $11.84 for the same period in 2001. The average price received per mcf of gas increased 98% from $2.03 for the six months ended June 30, 2000 to $4.01 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 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 six months ended June 30, 2001. Gains on disposition of assets of $39,237 and $24,345 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during the period ended June 30, 2001 was due to $25,956 from equipment credits on one well plugged and abandoned in the current period and $13,281 was primarily due to equipment credits received on fully depleted wells. The gain recognized during the period ended June 30, 2000 was comprised of $10,858 from equipment credits on one well plugged and abandoned in the current period and $13,487 salvage income primarily from wells plugged and abandoned during 1999. Expenses incurred during the six months ended June 30, 2001 and 2000 to plug and abandon these wells were $17,463 and $13,069, respectively. Costs and Expenses: Total costs and expenses decreased to $405,148 for the six months ended June 30, 2001 as compared to $427,095 for the same period in 2000, a decrease of $21,947, or 5%. This decrease was the result of lower production costs and depletion, offset by increases in abandoned property costs and general and administrative expenses ("G&A"). Production costs were $333,829 for the six months ended June 30, 2001 and $359,931 for the same period in 2000, resulting in a $26,102 decrease, or 7%. The decrease was primarily due to a decline in workover expense, offset by additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 15% from $20,878 for the six months ended June 30, 2000 to $23,975 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $29,881 for the six months ended June 30, 2001 as compared to $33,217 for the same period in 2000, a decrease of $3,336, or 10%. This decrease was primarily due to a reduction in the Partnership's net depletable basis from charges taken 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") during the fourth quarter of 2000. 8 934 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 1% to $324,594 for the three months ended June 30, 2001 as compared to $329,057 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and NGLs and a decline in production, offset by higher average prices received for gas. For the three months ended June 30, 2001, 9,760 barrels of oil, 1,965 barrels of NGLs and 12,708 mcf of gas were sold, or 13,843 BOEs. For the three months ended June 30, 2000, 9,809 barrels of oil, 2,987 barrels of NGLs and 13,759 mcf of gas were sold, or 15,089 BOEs. The average price received per barrel of oil decreased $.41, or 2%, from $27.16 for the three months ended June 30, 2000 to $26.75 for the same period in 2001. The average price received per barrel of NGLs decreased $.61, or 6%, from $11.07 during the three months ended June 30, 2000 to $10.46 for the same period in 2001. The average price received per mcf of gas increased 57% from $2.15 during the three months ended June 30, 2000 to $3.38 for the same period in 2001. Gains on disposition of assets of $11,917 and $8,716 were recognized for the three months ended June 30, 2001 and 2000, respectively. The gain recognized during the period ended June 30, 2001 was due to equipment credits received on fully depleted wells. The gain recognized during the period ended June 30, 2000, consisted of $4,981 from equipment credits received on a fully depleted well and $3,735 salvage income on a well plugged and abandoned during 1999. Expenses incurred during the three months ended June 30, 2001 and 2000 to plug and abandon these wells totaled $5,192 and $286, respectively. Costs and Expenses: Total costs and expenses decreased to $196,038 for the three months ended June 30, 2001 as compared to $225,996 for the same period in 2000, a decrease of $29,958, or 13%. This decrease was due to declines in production costs and depletion, offset by increases in abandoned property costs and G&A. Production costs were $163,644 for the three months ended June 30, 2001 and $200,770 for the same period in 2000, resulting in a $37,126 decrease, or 18%. The decrease was primarily due to less workover expense. During this period, G&A increased 26% from $9,872 for the three months ended June 30, 2000 to $12,473 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $14,729 for the three months ended June 30, 2001 as compared to $15,068 for the same period in 2000, a decrease of $339, or 2%. 9 935 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $136,279 during the six months ended June 30, 2001 from the same period in 2000. The increase was attributable to an increase of $11,577 in oil and gas sales receipts, a reduction of $106,091 in working capital and a decline of $26,102 in production costs, offset by increases in abandoned property costs of $4,394 and G&A expenses of $3,097. The increase in oil and gas receipts resulted from the increase in gas and NGL prices of $47,580 during 2001, offset by a decline of $31,828 in production and a $4,175 decline resulting from lower oil prices received in 2001 as compared to the same period in 2000. The decrease in production costs was primarily due to a decline in workover expenses, offset by additional well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to an increase in audit and tax fees. Net Cash Provided by Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to upgrade expenditures for oil and gas equipment on active properties. Proceeds from disposition of assets of $23,433 and $34,391 were received during the six months ended June 30, 2001 and 2000, respectively. The proceeds recognized during the period in 2001 were comprised of $10,152 from equipment credits on one well plugged and abandoned during the current period and $13,281 was from salvage income on fully depleted wells. The proceeds recognized during the period in 2000 were primarily from equipment credits on wells plugged and abandoned during 2000 and 1999. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $265,310, of which $2,653 was distributed to the managing general partner and $262,657 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $301,342, of which $3,013 was distributed to the managing general partner and $298,329 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the 10 936 agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 937 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) SIGNATURES 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: August 6, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 938 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 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) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT) --------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $12,170,000. As of March 8, 2001, the number of outstanding limited partnership interests was 24,426. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 939 PART I ITEM 1. BUSINESS 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's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 24,426 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 59%, 15% and 11% were attributable to sales made to Plains Marketing, L.P., Phillips Petroleum Company and TEPPCO Crude Oil LLC, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and 2 940 ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. The Partnership completed seven purchases of producing properties. These acquisitions involved the purchase of working interests in 187 properties of which 98 uneconomical oil and gas wells were plugged and abandoned and seven wells were sold. The Partnership also participated in the drilling of two oil and gas wells during 1988 which were completed as producers. During 1997, the Partnership participated in the recompletion of one well in which Pioneer USA acquired the deep rights. The Partnership already owned the shallow rights of the well bore. At December 31, 2000, the Partnership had 85 producing oil and gas wells. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 941 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 24,426 outstanding limited partnership interests held of record by 1,104 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $618,681 and $223,952, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 --------- --------- -------- --------- --------- Operating results: ----------------- Oil and gas sales $1,514,918 $ 860,305 $ 807,421 $1,244,727 $1,772,612 ========= ========= ========= ========= ========= Gain on litigation settlement, net $ - $ - $ - $ - $ 19,935 ========= ========= ========= ========= ========= Impairment of oil and gas properties $ 59,777 $ 43,412 $ 37,388 $ 420,264 $ 39,087 ========= ========= ========= ========= ========= Net income (loss) $ 601,515 $ 134,700 $ (357,482) $ (397,297) $ 984,877 ========= ========= ========= ========= ========= Allocation of net income (loss): Managing general partner $ 6,015 $ 1,347 $ (3,575) $ (3,973) $ 9,849 ========= ========= ========= ========= ========= Limited partners $ 595,500 $ 133,353 $ (353,907) $ (393,324) $ 975,028 ========= ========= ========= ========= ========= Limited partners' net income (loss) per limited partnership interest $ 24.38 $ 5.46 $ (14.49) $ (16.10) $ 39.92 ========= ========= ========= ========= ========= Limited partners' cash distributions per limited partnership interest $ 25.33 $ 9.17 $ 9.31 $ 24.14 $ 36.01 (a) ========= ========= ========= ========= ========= At year end: ----------- Identifiable assets $1,159,746 $1,181,827 $1,270,446 $1,871,158 $2,817,583 ========= ========= ========= ========= =========
--------------- (a) Including litigation settlement of $.81 per limited partnership interest in 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 4 942 2000 compared to 1999 The Partnership's oil and gas revenues increased 76% to $1,514,918 for 2000 as compared to $860,305 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 43,390 barrels of oil, 10,266 barrels of natural gas liquids ("NGLs") and 45,872 mcf of gas were sold, or 61,301 barrel of oil equivalents ("BOEs"). In 1999, 41,606 barrels of oil, 11,495 barrels of NGLs and 53,145 mcf of gas were sold, or 61,959 BOEs. 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 increased $12.54, or 75%, from $16.80 in 1999 to $29.34 in 2000. The average price received per barrel of NGLs increased $4.80, or 66%, from $7.32 in 1999 to $12.12 in 2000. The average price received per mcf of gas increased 75% from $1.46 in 1999 to $2.56 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $37,944 recognized during 2000 resulted from $26,860 in salvage income received on a fully depleted well and wells plugged and abandoned in prior years, in addition to an $11,084 gain recognized from the abandonment of three wells during the current year. Gain on disposition of assets of $25,173 for 1999 resulted from $17,629 in salvage income received on the abandonment of two oil and gas wells during 1999, in addition to $7,544 salvage income received on fully depleted wells and wells plugged and abandoned in prior years. Total costs and expenses increased in 2000 to $967,456 as compared to $760,971 in 1999, an increase of $206,485, or 27%. The increase was due to higher production costs, general and administrative expenses ("G&A"), the impairment of oil and gas properties and abandoned property costs, offset by a decline in depletion. Production costs were $765,021 in 2000 and $555,988 in 1999, resulting in an increase of $209,033, or 38%. The increase was primarily due to additional workover costs and well maintenance costs incurred to stimulate production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 76%, from $25,809 in 1999 to $45,448 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $29,711 in 2000 and $1,550 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 943 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized non-cash charges of $59,777 and $43,412 related to its oil and gas properties during 2000 and 1999, respectively. Depletion was $69,296 in 2000 as compared to $109,034 in 1999, representing a decrease of $39,738, or 36%. This decrease was primarily due to a 119,706 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999. Abandoned property costs of $27,914 and $26,728 were incurred on the abandonment of several properties in 2000 and 1999, respectively. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 7% to $860,305 from $807,421 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 41,606 barrels of oil, 11,495 barrels of NGLs and 53,145 mcf of gas were sold, or 61,959 BOEs. In 1998, 51,039 barrels of oil, 13,328 barrels of NGLs and 56,240 mcf of gas were sold, or 73,740 BOEs. The average price received per barrel of oil increased $3.76, or 29%, from $13.04 in 1998 to $16.80 in 1999. The average price received per barrel of NGLs increased $1.86, or 34%, from $5.46 in 1998 to $7.32 in 1999. The average price received per mcf of gas increased 19% from $1.23 in 1998 to $1.46 in 1999. The $25,173 gain on disposition of assets for 1999 resulted from $17,629 in salvage income received on the abandonment of two oil and gas wells during 1999, in addition to $7,544 salvage income received on fully depleted wells and wells plugged and abandoned in prior years. During 1998, the $24,040 gain on disposition of assets resulted from $29,099 in salvage income received during 1998 on properties that were plugged and abandoned in prior years, offset by a $5,059 loss on the abandonment of two oil and gas wells and one saltwater disposal well. Total costs and expenses decreased in 1999 to $760,971 as compared to $1,202,296 in 1998, a decrease of $441,325, or 37%. The decrease was due to declines in depletion, production costs and abandoned property costs, offset by increases in the impairment of oil and gas properties and G&A. Production costs were $555,988 in 1999 and $682,634 in 1998, resulting in a $126,646 decrease, or 19%. The decrease was due to reductions in well maintenance costs and ad valorem taxes, offset by an increase in workover costs incurred to stimulate production. During this period, G&A increased 7%, from $24,223 in 1998 to $25,809 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and 6 944 gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $1,550 in 1999 and $10,723 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $43,412 and $37,388 related to its oil and gas properties during 1999 and 1998, respectively. Depletion was $109,034 in 1999 compared to $383,398 in 1998, representing a decrease of $274,364, or 72%. This decrease was the result of an increase in proved reserves of 306,417 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 9,433 barrels for the period ended December 31, 1999 compared to the same period in 1998. Abandoned property costs of $26,728 and $74,653 were incurred on the abandonment of several properties in 1999 and 1998, respectively. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $389,055 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $660,529, offset by increases in production costs paid of $209,033, G&A expenses paid of $19,639, abandoned property costs paid of $1,186 and working capital of $41,616. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $641,727 to oil and gas receipts and an increase of $18,802 resulting from an increase in oil production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional workover and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. 7 945 Net Cash Provided by Investing Activities The Partnership's investing activities during 2000 and 1999 were related to the addition of oil and gas equipment on active properties. Proceeds from disposition of assets of $57,999 for 2000 resulted from $36,906 salvage income on a fully depleted well and wells abandoned in a prior year, $15,711 salvage income received on two wells plugged and abandoned in 2000 and $5,382 from equipment credits on one active well. Proceeds from disposition of assets of $21,887 for 1999 resulted from $7,583 in salvage income received on one well plugged and abandoned during 1999, in addition to $7,544 salvage income primarily received on fully depleted wells and $6,760 from equipment credits on one active well. Net Cash Used in Financing Activities For 2000, cash distributions to the partners were $624,930, of which $6,249 was distributed to the managing general partner and $618,681 to the limited partners. In 1999, cash distributions to the partners were $226,214, of which $2,262 was distributed to the managing general partner and $223,952 to the limited partners. 8 946 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley Producing Properties 87-A, Ltd: Independent Auditors' Report......................................................... 10 Balance Sheets as of December 31, 2000 and 1999...................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 14 Notes to Financial Statements........................................................ 15
9 947 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Producing Properties 87-A, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley Producing Properties 87-A, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Producing Properties 87-A, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 10 948 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------------ ------------ ASSETS ------ Current assets: Cash $ 182,206 $ 170,538 Accounts receivable - oil and gas sales 296,053 195,636 ------------ ----------- Total current assets 478,259 366,174 ------------ ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,701,037 5,774,563 Accumulated depletion (5,019,550) (4,958,910) ------------ ----------- Net oil and gas properties 681,487 815,653 ------------ ----------- $ 1,159,746 $1,181,827 ============ =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 37,242 $ 35,908 Partners' capital: Managing general partner 12,466 12,700 Limited partners (24,426 interests) 1,110,038 1,133,219 ------------ ----------- 1,122,504 1,145,919 ------------ ----------- $ 1,159,746 $1,181,827 ============ ===========
The accompanying notes are an integral part of these financial statements. 11 949 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 1,514,918 $ 860,305 $ 807,421 Interest 16,109 10,193 13,353 Gain on disposition of assets 37,944 25,173 24,040 ----------- ----------- ----------- 1,568,971 895,671 844,814 ----------- ----------- ----------- Costs and expenses: Oil and gas production 765,021 555,988 682,634 General and administrative 45,448 25,809 24,223 Impairment of oil and gas properties 59,777 43,412 37,388 Depletion 69,296 109,034 383,398 Abandoned property 27,914 26,728 74,653 ----------- ----------- ----------- 967,456 760,971 1,202,296 ----------- ----------- ----------- Net income (loss) $ 601,515 $ 134,700 $ (357,482) =========== =========== =========== Allocation of net income (loss): Managing general partner $ 6,015 $ 1,347 $ (3,575) =========== =========== =========== Limited partners $ 595,500 $ 133,353 $ (353,907) =========== =========== =========== Net income (loss) per limited partnership interest $ 24.38 $ 5.46 $ (14.49) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 950 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ---------- ----------- ----------- Partners' capital at January 1, 1998 $ 19,487 $1,805,112 $1,824,599 Distributions (2,297) (227,387) (229,684) Net loss (3,575) (353,907) (357,482) ---------- ----------- ----------- Partners' capital at December 31, 1998 13,615 1,223,818 1,237,433 Distributions (2,262) (223,952) (226,214) Net income 1,347 133,353 134,700 ---------- ----------- ----------- Partners' capital at December 31, 1999 12,700 1,133,219 1,145,919 Distributions (6,249) (618,681) (624,930) Net income 6,015 595,500 601,515 ---------- ----------- ----------- Partners' capital at December 31, 2000 $ 12,466 $1,110,038 $1,122,504 ========== =========== ===========
The accompanying notes are an integral part of these financial statements. 13 951 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss) $ 601,515 $ 134,700 $(357,482) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 59,777 43,412 37,388 Depletion 69,296 109,034 383,398 Gain on disposition of assets (37,944) (25,173) (24,040) Changes in assets and liabilities: Accounts receivable (100,417) (80,454) 95,326 Accounts payable (8,712) 12,941 (13,546) ---------- ---------- ---------- Net cash provided by operating activities 583,515 194,460 121,044 ---------- ---------- ---------- Cash flows from investing activities: Additions to oil and gas equipment (4,916) (2,818) (11,491) Proceeds from disposition of assets 57,999 21,887 83,839 ---------- ---------- ---------- Net cash provided by investing activities 53,083 19,069 72,348 ---------- ---------- ---------- Cash flows used in financing activities: Cash distributions to partners (624,930) (226,214) (229,684) ---------- ---------- ---------- Net increase (decrease) in cash 11,668 (12,685) (36,292) Cash at beginning of year 170,538 183,223 219,515 ---------- ---------- ---------- Cash at end of year $ 182,206 $ 170,538 $ 183,223 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 14 952 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 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's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). The Partnership engages in oil and gas production in Texas and is not involved in any industry segment other than oil and gas. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income (loss) of the Partnership is included in the individual Federal income tax returns of the 15 953 respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of the cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $59,777, $43,412 and $37,388 related to its proved oil and gas properties during 2000, 1999 and 1998, respectively. 16 954 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $1,521,385 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income (loss) per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------- -------- --------- Net income (loss) per statements of operations $ 601,515 $ 134,700 $ (357,482) Depletion and depreciation provisions for tax reporting purposes (greater than) less than amounts for financial reporting purposes (12,672) 47,101 (84,454) Impairment of oil and gas properties for financial reporting purposes 59,777 43,412 37,388 Other, net (15,730) (2,287) 4,922 -------- -------- --------- Net income (loss) per Federal income tax returns $ 632,890 $ 222,926 $ (399,626) ======== ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the net costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- -------- --------- Property acquisition costs $ 4,087 $ 1,104 $ 11,491 ======== ======== ========= Development costs $ 829 $ 1,714 $ - ======== ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999 ---------- ----------- Proved properties: Property acquisition costs $5,021,262 $ 5,095,617 Completed wells and equipment 679,775 678,946 ---------- ----------- 5,701,037 5,774,563 Accumulated depletion (5,019,550) (4,958,910) ---------- ----------- Net oil and gas properties $ 681,487 $ 815,653 ========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- ---------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 268,224 $ 254,244 $ 292,539 Reimbursement of general and administrative expenses $ 29,711 $ 1,550 $ 10,723
17 955 The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees Producing Properties 87-A ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a general partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- ----------- Revenues: Revenues from oil and gas production, proceeds from sales of producing properties and all other revenues: Before payout (2) 4.040405% 95.959595% After payout 19.191920% 80.808080% Costs and expenses: Property acquisition costs, operating costs, general and administrative expenses and other costs: Before payout (2) 4.040405% 95.959595% After payout 19.191920% 80.808080%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 86 limited partner interests owned by Pioneer USA. (2) The Partnership has not reached payout. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 18 956
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 719,789 996,755 Revisions (302,841) (385,883) Production (64,367) (56,240) ---------- ---------- Net proved reserves at December 31, 1998 352,581 554,632 Revisions 461,643 633,460 Production (53,101) (53,145) ---------- ---------- Net proved reserves at December 31, 1999 761,123 1,134,947 Revisions 6,756 (376,058) Production (53,656) (45,872) ---------- ---------- Net proved reserves at December 31, 2000 714,223 713,017 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $12.58 per barrel of NGLs and $7.60 per mcf of gas, discounted at 10% was approximately $4,683,000 and undiscounted was $9,322,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 19 957
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (in thousands) Oil and gas producing activities: Future cash inflows $ 22,258 $ 18,298 $ 3,739 Future production costs (12,936) (10,698) (2,777) ----------- ----------- ----------- 9,322 7,600 962 10% annual discount factor (4,639) (3,477) (323) ----------- ----------- ----------- Standardized measure of discounted future net cash flows $ 4,683 $ 4,123 $ 639 =========== =========== ===========
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (750) $ (304) $ (125) Net changes in prices and production costs 1,685 1,668 (1,687) Revisions of previous quantity estimates (339) 3,013 (453) Accretion of discount 412 64 275 Changes in production rates, timing and other (448) (957) (118) -------- --------- -------- Change in present value of future net revenues 560 3,484 (2,108) -------- --------- -------- Balance, beginning of year 4,123 639 2,747 -------- --------- -------- Balance, end of year $ 4,683 $ 4,123 $ 639 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 59% 60% - Phillips Petroleum Company 15% 14% 16% TEPPCO Crude Oil LLC 11% - - Genesis Crude Oil, L.P. - - 66%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., Phillips Petroleum Company and TEPPCO Crude Oil LLC were $78,270, $54,144 and $29,228, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership 20 958 affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $12,213,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 959 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 22 960 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 23 961 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the limited partnership agreement, Pioneer USA pays 1% of the Program's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 1% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 86 limited partnership interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer of director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 24 962
2000 1999 1998 ------------- ------------- ------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $268,224 $ 254,244 $292,539 Reimbursement of general and administrative expenses $ 29,711 $ 1,550 $ 10,723
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 25 963 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 26 964 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. Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------------ Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 26, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 26, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 26, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 26, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
27 965 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Amended and Restated Certificate of Limited - Partnership of Parker & Parsley Producing Properties 87-A, Ltd. incorporated by reference to Exhibit 3a of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 4(a) Agreement of Limited Partnership of Parker - & Parsley Producing Properties 87-A, Ltd. incorporated by reference to Exhibit A of Amendment No, 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 4(b) Subscription Agreement incorporated by - reference to Exhibit C of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 4(b) Power of Attorney incorporated by reference - to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 10(b) Program Agreement incorporated by reference - to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193)
28 966 PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 31, Years ended December 31, --------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 -------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 708,005 $ 695,926 $1,514,918 $ 860,305 $ 807,421 $1,244,727 $1,772,612 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 19,935 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 59,777 $ 43,412 $ 37,388 $ 420,264 $ 39,087 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 348,741 $ 300,325 $ 601,515 $ 134,700 $ (357,482) $ (397,297) $ 984,877 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,487 $ 3,003 $ 6,015 $ 1,347 $ (3,575) $ (3,973) $ 9,849 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 345,254 $ 297,322 $ 595,500 $ 133,353 $ (353,907) $ (393,324) $ 975,028 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 14.13 $ 12.17 $ 24.38 $ 5.46 $ (14.49) $ (16.10) $ 39.92 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 10.75 $ 12.21 $ 25.33 $ 9.17 $ 9.31 $ 24.14 $ 36.01(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,237,141 $1,191,053 $1,159,746 $1,181,827 $1,270,446 $1,871,158 $2,817,583 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement of $.81 per limited partnership interest in 1996. 967 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Producing Properties 87-B, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Producing Properties 87-B, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 968 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 6,096 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 6,870 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a),(b) $ 2,297 Merger Value per $1,000 Limited Partner Investment(b),(c) $382.94 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.77 times past four quarterly distributions including the distribution in July 2001(b),(c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $140.92 -- as of December 31, 2000(c) $136.41 Going Concern Value per $1,000 Limited Partner Investment(c),(d) $356.97 Liquidation Value per $1,000 Limited Partner Investment(c),(e) $371.47 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(f) --
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Not applicable. Since this partnership purchased producing properties, there were no intangible drilling and development costs nor any related write-off for tax purposes. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2037, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 969 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, 2001 Commission File No. 33-11193-2 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (Exact name of Registrant as specified in its charter) Texas 75-2205943 ------------------------------------------- --------------------- (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 / / 970 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................. 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12
2 971 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 113,962 $ 19,277 Accounts receivable - oil and gas sales 139,187 194,002 ---------- ---------- Total current assets 253,149 213,279 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 4,832,086 4,829,203 Accumulated depletion (4,199,123) (4,181,937) ---------- ---------- Net oil and gas properties 632,963 647,266 ---------- ---------- $ 886,112 $ 860,545 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 18,189 $ 20,375 Partners' capital: Managing general partner 8,939 8,661 Limited partners (12,191 interests) 858,984 831,509 ---------- ---------- 867,923 840,170 ---------- ---------- $ 886,112 $ 860,545 ========== ==========
The financial information included as of June 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. 3 972 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 197,119 $ 205,745 $ 435,162 $ 469,537 Interest 1,073 1,465 2,253 2,536 Gain on disposition of assets - - - 8,294 -------- -------- -------- -------- 198,192 207,210 437,415 480,367 -------- -------- -------- -------- Costs and expenses: Oil and gas production 122,377 82,693 209,886 192,129 General and administrative 5,914 6,172 13,055 14,086 Depletion 7,634 8,103 17,186 18,829 -------- -------- -------- -------- 135,925 96,968 240,127 225,044 -------- -------- -------- -------- Net income $ 62,267 $ 110,242 $ 197,288 $ 255,323 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 623 $ 1,102 $ 1,973 $ 2,553 ======== ======== ======== ======== Limited partners $ 61,644 $ 109,140 $ 195,315 $ 252,770 ======== ======== ======== ======== Net income per limited partnership interest $ 5.06 $ 8.95 $ 16.02 $ 20.73 ======== ======== ======== ========
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. 4 973 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 8,661 $ 831,509 $ 840,170 Distributions (1,695) (167,840) (169,535) Net income 1,973 195,315 197,288 -------- --------- --------- Balance at June 30, 2001 $ 8,939 $ 858,984 $ 867,923 ======== ========= =========
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. 5 974 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 197,288 $ 255,323 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 17,186 18,829 Gain on disposition of assets - (8,294) Changes in assets and liabilities: Accounts receivable 54,815 17,448 Accounts payable (2,186) (789) --------- --------- Net cash provided by operating activities 267,103 282,517 --------- --------- Cash flows from investing activities: Additions to oil and gas equipment (2,883) - Proceeds from asset dispositions - 13,944 --------- --------- Net cash provided by (used in) investing activities (2,883) 13,944 --------- --------- Cash flows used in financing activities: Cash distributions to partners (169,535) (265,842) --------- --------- Net increase in cash 94,685 30,619 Cash at beginning of period 19,277 21,724 --------- --------- Cash at end of period $ 113,962 $ 52,343 ========= =========
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. 6 975 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Producing Properties 87-B, 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 7% to $435,162 for the six months ended June 30, 2001 as compared to $469,537 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil, offset by higher average prices received for gas and 7 976 NGLs. For the six months ended June 30, 2001, 10,264 barrels of oil, 3,788 barrels of natural gas liquids ("NGLs") and 19,481 mcf of gas were sold, or 17,299 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 11,962 barrels of oil, 5,429 barrels of NGLs and 26,130 mcf of gas were sold, or 21,746 BOEs. Of the decrease, 1,740 BOEs are attributable to the fact that on April 1, 2000 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"). The average price received per barrel of oil decreased $1.07, or 4%, from $27.96 for the six months ended June 30, 2000 to $26.89 for the same period in 2001. The average price received per barrel of NGLs increased $2.22, or 15%, from $14.82 during the six months ended June 30, 2000 to $17.04 for the same period in 2001. The average price received per mcf of gas increased 133% to $4.86 for the six months ended June 30, 2001 compared to $2.09 for the same period in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 six months ended June 30, 2001. Gain on disposition of assets of $8,294 was recognized during the six months ended June 30, 2000. The gain was due to equipment credits received on fully depleted wells. Costs and Expenses: Total costs and expenses increased to $240,127 for the six months ended June 30, 2001 as compared to $225,044 for the same period in 2000, an increase of $15,083, or 7%. This increase was due to an increase in production costs, offset by declines in depletion and general and administrative expenses ("G&A"). Production costs were $209,886 for the six months ended June 30, 2001 and $192,129 for the same period in 2000, resulting in a $17,757 increase, or 9%. A 20% increase in production costs resulted from higher well maintenance and workover costs incurred to stimulate well production, offset by an 11% decline in lease operating costs and production taxes attributable to the Reversionary Interest change. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 7% from $14,086 for the six months ended June 30, 2000, to $13,055 for the same period in 2001, primarily due to the Reversionary Interest change as noted above. Depletion was $17,186 for the six months ended June 30, 2001 as compared to $18,829 for the same period in 2000, a decrease of $1,643, or 9%. This decrease was primarily due to a decrease in oil production of 1,698 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 8 977 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 4% to $197,119 for the three months ended June 30, 2001 as compared to $205,745 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and a decrease in production, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 4,872 barrels of oil, 2,038 barrels of NGLs and 9,647 mcf of gas were sold, or 8,518 BOEs. For the three months ended June 30, 2000, 4,955 barrels of oil, 2,418 barrels of NGLs and 11,575 mcf of gas were sold, or 9,302 BOEs. The average price received per barrel of oil decreased $1.93, or 7%, from $28.54 for the three months ended June 30, 2000 to $26.61 for the same period in 2001. The average price received per barrel of NGLs increased $.61, or 4%, from $14.68 during the three months ended June 30, 2000 to $15.29 for the same period in 2001. The average price received per mcf of gas increased 51% from $2.49 during the three months ended June 30, 2000 to $3.77 for the same period in 2001. Costs and Expenses: Total costs and expenses increased to $135,925 for the three months ended June 30, 2001 as compared to $96,968 for the same period in 2000, an increase of $38,957, or 40%. This increase was due to higher production costs, offset by decreases in depletion and G&A. Production costs were $122,377 for the three months ended June 30, 2001 and $82,693 for the same period in 2000, resulting in a $39,684 increase, or 48%. The increase was the result of additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A decreased 4% from $6,172 for the three months ended June 30, 2000 to $5,914 for the same period in 2001, primarily due to decreased audit and tax fees. Depletion was $7,634 for the three months ended June 30, 2001 as compared to $8,103 for the same period in 2000, a decrease of $469, or 6%. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities decreased $15,414 during the six months ended June 30, 2001 from the same period in 2000. This decrease was due to a reduction in oil and gas receipts of $34,658 and an increase in production costs of $17,757, offset by a decrease in G&A expenses of $1,031 and a reduction in working capital of $35,970. The increase in production costs was primarily due to higher well maintenance and workover costs incurred to stimulate well production, offset by the Reversionary Interest change. The decrease in oil and gas sales receipts resulted from a decline of $106,201 in production in 2001 as 9 978 compared to the same period in 2000 and a decline in oil prices of $12,792, offset by an increase in gas and NGL prices of $84,335 during 2001. The decrease in G&A was primarily due to the Reversionary Interest change. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 were related to expenditures for upgrades of oil and gas equipment on active properties. Proceeds from asset dispositions of $13,944 were received for the six months ending June 30, 2000. The proceeds were primarily from equipment credits on fully depleted wells. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $169,535, of which $1,695 was distributed to the managing general partner and $167,840 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $265,842, of which $2,658 was distributed to the managing general partner and $263,184 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, because 10 979 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 980 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) SIGNATURES 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-B, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy ----------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 981 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-11193-2 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (Exact name of Registrant as specified in its charter) TEXAS 75-2205943 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT) --------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $5,997,500. As of March 8, 2001, the number of outstanding limited partnership interests was 12,191. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 982 PART I ITEM 1. BUSINESS Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the state of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 12,191 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 32%, 22% and 20% were attributable to sales made to Plains Marketing, L.P., TEPPCO Crude Oil LLC and Phillips Petroleum Company, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that 2 983 its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. The Partnership completed seven purchases of producing properties. These acquisitions involved the purchase of working interests in 54 properties. The Partnership also participated in the drilling of two oil and gas wells during 1988 which were completed as producers. Additionally, the Partnership purchased 15 overriding royalty interests effective January 1, 1990 and two additional overriding royalty interests during 1991. Twenty-two uneconomical wells have been abandoned. At December 31, 2000, the Partnership had 34 producing oil and gas wells. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 984 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 12,191 outstanding limited partnership interests held of record by 550 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $586,016 and $170,405, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 --------- --------- -------- --------- --------- Operating results: ----------------- Oil and gas sales $ 982,604 $ 625,861 $ 532,606 $ 846,163 $ 980,232 ========= ======== ========= ========= ========= Impairment of oil and gas properties $ - $ - $ 35,017 $ 317,255 $ 42,277 ========= ======== ========= ========= ========= Net income (loss) $ 562,621 $ 163,148 $ (118,738) $ (142,439) $ 303,380 ========= ======== ========= ========= ========= Allocation of net income (loss): Managing general partner $ 5,626 $ 1,631 $ (1,187) $ (1,424) $ 3,034 ========= ======== ========= ========= ========= Limited partners $ 556,995 $ 161,517 $ (117,551) $ (141,015) $ 300,346 ========= ======== ========= ========= ========= Limited partners' net income (loss) per limited partnership interest $ 45.69 $ 13.25 $ (9.64) $ (11.57) $ 24.64 ========= ======== ========= ========= ========= Limited partners' cash distributions per limited partnership interest $ 48.07 $ 13.98 $ 16.41 $ 39.20 $ 35.59 ========= ======== ========= ========= ========= At year end: ----------- Identifiable assets $ 860,545 $ 892,550 $ 878,401 $1,241,161 $1,823,614 ========= ======== ========= ========= =========
4 985 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 57% to $982,604 for 2000 as compared to $625,861 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 22,713 barrels of oil, 10,402 barrels of natural gas liquids ("NGLs") and 49,380 mcf of gas were sold, or 41,345 barrel of oil equivalents ("BOEs"). In 1999, 24,976 barrels of oil, 10,794 barrels of NGLs and 48,774 mcf of gas were sold, or 43,899 BOEs. Of the decrease, 5,393 BOEs are attributable to the fact that on April 1, 2000, 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 partner's capital ("Reversionary Interest"). This is offset by a production increase of 2,839 BOEs. 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 increased $11.92, or 68%, from $17.44 in 1999 to $29.36 in 2000. The average price received per barrel of NGLs increased $6.36, or 62%, from $10.32 in 1999 to $16.68 in 2000. The average price received per mcf of gas increased 78% from $1.62 in 1999 to $2.88 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gains on disposition of assets of $8,294 and $11,482 were recognized in 2000 and 1999, respectively. The gain from 2000 was from equipment salvage on one well abandoned in a prior year. The gain from 1999 was from equipment salvage of $12,955 on one well plugged and abandoned in a prior year, offset by a $1,473 loss on the write-off of basis on one well plugged and abandoned during 1999. Total costs and expenses decreased in 2000 to $434,793 as compared to $477,552 in 1999, a decrease of $42,759, or 9%. The decrease was primarily attributable to declines in depletion, production costs and abandoned property costs, offset by an increase in general and administrative expenses ("G&A"). Production costs were $347,938 in 2000 and $364,187 in 1999, resulting in a decrease of $16,249, or 4%. Lease operating costs and production taxes declined 12% which was attributable to the Reversionary Interest change, offset by an 8% increase in production costs resulting from high production taxes due to higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 79%, from $18,776 in 1999 to 5 986 $33,521 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $27,424 in 2000 and $8,400 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $53,334 in 2000 as compared to $79,975 in 1999, a decrease of $26,641, or 33%. This decrease was primarily due to a 51,092 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. Abandoned property costs of $14,614 incurred in 1999 were related to the temporary abandonment of one well during 1999 and two wells plugged and abandoned in prior years. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 18% to $625,861 from $532,606 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 24,976 barrels of oil, 10,794 barrels of NGLs and 48,774 mcf of gas were sold, or 43,899 BOEs. In 1998, 29,481 barrels of oil, 11,315 barrels of NGLs and 50,220 mcf of gas were sold, or 49,166 BOEs. The average price received per barrel of oil increased $4.39, or 34%, from $13.05 in 1998 to $17.44 in 1999. The average price received per barrel of NGLs increased $3.74, or 57%, from $6.58 in 1998 to $10.32 in 1999. The average price received per mcf of gas increased 11% from $1.46 in 1998 to $1.62 in 1999. Gain on disposition of assets of $11,482 was recognized in 1999 from equipment salvage of $12,955 on one well plugged and abandoned in a prior year, offset by a $1,473 loss on the write-off of basis on one well plugged and abandoned during 1999. In 1998, $4,248 gain on disposition of assets was recognized from proceeds received from equipment salvage on wells plugged in prior years. Total costs and expenses decreased in 1999 to $477,552 as compared to $659,670 in 1998, a decrease of $182,118, or 28%. The decrease was primarily attributable to declines in depletion, the impairment of oil and gas properties, production costs and abandoned property costs, offset by an increase in G&A. Production costs were $364,187 in 1999 and $385,648 in 1998, resulting in a $21,461 decrease, or 6%. The decrease was the result of declines in well maintenance costs, ad valorem taxes and workover expenses. During this period, G&A increased 18% from $15,978 in 1998 to $18,776 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $8,400 in 1999 and $9,662 in 1998 for G&A incurred on behalf of the Partnership. 6 987 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $35,017 related to its oil and gas properties during 1998. Depletion was $79,975 in 1999 compared to $206,289 in 1998, a decrease of $126,314, or 61%. This decrease was primarily due to an increase in proved reserves of 180,622 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 4,505 barrels for the period ended December 31, 1999 compared to the same period in 1998. Abandoned property costs of $14,614 incurred in 1999 were related to the temporary abandonment of one well during 1999 and two wells plugged and abandoned in prior years. Expenses of $16,738 were incurred in 1998 to plug and abandon one oil and gas well which was temporarily abandoned in a prior year. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 7 988 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $392,559 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $359,902 and declines in production costs paid of $16,249, abandoned property costs paid of $14,614 and working capital of $16,539, offset by an increase in G&A expenses paid of $14,745. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $431,139 to oil and gas receipts, offset by $71,237 resulting from the decline in production during 2000. The decrease in production costs was primarily due to the Reversionary Interest change, offset by higher production taxes associated with high oil and gas prices and additional well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities during 1999 were primarily for expenditures related to upgrades of equipment on various oil and gas properties. Proceeds of $13,943 and $12,956 were recognized during 2000 and 1999, respectively, from equipment salvage on wells abandoned in prior years. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $591,935, of which $5,919 was distributed to the managing general partner and $586,016 to the limited partners. In 1999, cash distributions to the partners were $172,065, of which $1,660 was distributed to the managing general partner and $170,405 to the limited partners. 8 989 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley Producing Properties 87-B, Ltd.: Independent Auditors' Report......................................................... 10 Balance Sheets as of December 31, 2000 and 1999...................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 14 Notes to Financial Statements........................................................ 15
9 990 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Producing Properties 87-B, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley Producing Properties 87-B, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Producing Properties 87-B, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 10 991 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------------ ------------ ASSETS ------ Current assets: Cash $ 19,277 $ 21,724 Accounts receivable - oil and gas sales 194,002 164,577 ---------- ---------- Total current assets 213,279 186,301 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 4,829,203 4,837,591 Accumulated depletion (4,181,937) (4,131,342) ---------- ---------- Net oil and gas properties 647,266 706,249 ---------- ---------- $ 860,545 $ 892,550 ========== ========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 20,375 $ 23,066 Partners' capital: Managing general partner 8,661 8,954 Limited partners (12,191 interests) 831,509 860,530 ---------- ---------- 840,170 869,484 $ 860,545 $ 892,550 ========== ==========
The accompanying notes are an integral part of these financial statements. 11 992 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 982,604 $ 625,861 $ 532,606 Interest 6,516 3,357 4,078 Gain on disposition of assets 8,294 11,482 4,248 --------- --------- --------- 997,414 640,700 540,932 --------- --------- --------- Costs and expenses: Oil and gas production 347,938 364,187 385,648 General and administrative 33,521 18,776 15,978 Impairment of oil and gas properties - - 35,017 Depletion 53,334 79,975 206,289 Abandoned property - 14,614 16,738 --------- --------- --------- 434,793 477,552 659,670 --------- --------- --------- Net income (loss) $ 562,621 $ 163,148 $(118,738) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 5,626 $ 1,631 $ (1,187) ========= ========= ========= Limited partners $ 556,995 $ 161,517 $(117,551) ========= ========= ========= Net income (loss) per limited partnership interest $ 45.69 $ 13.25 $ (9.64) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 12 993 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ---------- ----------- ----------- Partners' capital at January 1, 1998 $ 11,934 $1,186,985 $1,198,919 Distributions (1,764) (200,016) (201,780) Net loss (1,187) (117,551) (118,738) ---------- ---------- ---------- Partners' capital at December 31, 1998 8,983 869,418 878,401 Distributions (1,660) (170,405) (172,065) Net income 1,631 161,517 163,148 ---------- ---------- ---------- Partners' capital at December 31, 1999 8,954 860,530 869,484 Distributions (5,919) (586,016) (591,935) Net income 5,626 556,995 562,621 ---------- ---------- ---------- Partners' capital at December 31, 2000 $ 8,661 $ 831,509 $ 840,170 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 13 994 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss) $ 562,621 $ 163,148 $ (118,738) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on disposition of assets (8,294) (11,482) (4,248) Impairment of oil and gas properties - - 35,017 Depletion 53,334 79,975 206,289 Changes in assets and liabilities Accounts receivable (29,425) (75,008) 65,047 Accounts payable (2,691) 26,353 (42,242) --------- --------- ---------- Net cash provided by operating activities 575,545 182,986 141,125 --------- --------- ---------- Cash flows from investing activities: Additions to oil and gas equipment - (12,012) (8,617) Proceeds from disposition of assets 13,943 12,956 4,248 --------- --------- ---------- Net cash provided by (used in) investing activities 13,943 944 (4,369) --------- --------- ---------- Cash flows used in financing activities: Cash distributions to partners (591,935) (172,065) (201,780) --------- --------- ---------- Net increase (decrease) in cash (2,447) 11,865 (65,024) Cash at beginning of year 21,724 9,859 74,883 --------- ------- ---------- Cash at end of year $ 19,277 $ 21,724 $ 9,859 ========= ========= ==========
The accompanying notes are an integral part of these financial statements. 14 995 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the State of Texas. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). The Partnership engages in oil and gas production in Texas and is not involved in any industry segment other than oil and gas. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 15 996 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $35,017 related to its proved oil and gas properties during 1998. 16 997 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $838,681 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income (loss) per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------- -------- --------- Net income (loss) per statements of operations $ 562,621 $ 163,148 $(118,738) Depletion and depreciation provisions for tax reporting purposes (greater than) less than amounts for financial reporting purposes (39,072) 7,412 (59,976) Impairment of oil and gas properties for financial reporting purposes - - 35,017 Abandoned property dispositions for tax reporting greater than (less than) amounts for financial reporting purposes - - (218,079) Other, net 4,370 (7,638) 3,376 ------- ------- ------- Net income (loss) per Federal income tax returns $ 527,919 $ 162,922 $(358,400) ======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- -------- --------- Property acquisition costs $ - $ (2,313) $ 6,754 ======== ======== ======== Development costs $ - $ 4,136 $ 1,863 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ---------- ---------- Proved properties: Property acquisition costs $ 3,288,184 $ 3,289,170 Completed wells and equipment 1,541,019 1,548,421 --------- ---------- 4,829,203 4,837,591 Accumulated depletion (4,181,937) (4,131,342) ---------- ---------- Net oil and gas properties $ 647,266 $ 706,249 ========= ==========
17 998 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 121,257 $ 137,769 $ 144,149 Reimbursement of general and administrative expenses $ 27,424 $ 8,400 $ 9,662
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Producing Properties 87-B Employees ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a general partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- ----------- Revenues: Revenues from oil and gas production, proceeds from sales of producing properties and all other revenues: Before payout 4.040405% 95.959595% After payout (2) 19.191920% 80.808080% Costs and expenses: Property acquisition costs, operating costs, general and administrative expenses and other costs: Before payout 4.040405% 95.959595% After payout (2) 19.191920% 80.808080%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 196 limited partner interests owned by Pioneer USA. (2) The Partnership reached payout in April 2000. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 18 999
Oil and NGLs Gas (bbls) (mcf) ------------ --------- Net proved reserves at January 1, 1998 419,589 664,089 Revisions (95,538) (99,794) Production (40,796) (50,220) ---------- --------- Net proved reserves at December 31, 1998 283,255 514,075 Revisions 292,082 490,347 Production (35,770) (48,774) ---------- --------- Net proved reserves at December 31, 1999 539,567 955,648 Revisions 31,315 (45,195) Production (33,115) (49,380) ---------- --------- Net proved reserves at December 31, 2000 537,767 861,073 ========== =========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.63 per barrel of oil, $13.33 per barrel of NGLs and $7.67 per mcf of gas, discounted at 10% was approximately $4,413,000 and undiscounted was $9,495,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (in thousands) Oil and gas producing activities: Future cash inflows $ 18,453 $ 13,256 $ 3,115 Future production costs (8,958) (7,154) (2,221) -------- -------- -------- 9,495 6,102 894 10% annual discount factor (5,082) (3,024) (335) -------- -------- -------- Standardized measure of discounted future net cash flows $ 4,413 $ 3,078 $ 559 ========= ========= ========
19 1000
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (635) $ (262) $ (147) Net changes in prices and production costs 1,865 1,419 (1,151) Revisions of previous quantity estimates 168 2,042 (144) Accretion of discount 308 56 185 Changes in production rates, timing and other (371) (736) (32) -------- --------- -------- Change in present value of future net revenues 1,335 2,519 (1,289) -------- --------- -------- Balance, beginning of year 3,078 559 1,848 -------- --------- -------- Balance, end of year $ 4,413 $ 3,078 $ 559 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 32% 37% - TEPPCO Crude Oil LLC 22% 23% - Phillips Petroleum Company 20% 10% 9% Genesis Crude Oil, L.P. - - 58% Western Gas Resources, Inc. 6% 7% 23%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., TEPPCO Crude Oil LLC and Phillips Petroleum Company were $25,204, $31,416 and $21,019, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. 20 1001 NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $6,095,500. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 1002 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 22 1003 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 23 1004 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the limited partnership agreement, Pioneer USA pays 1% of the Program's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 1% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 196 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 24 1005 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $121,257 $ 137,769 $144,149 Reimbursement of general and administrative expenses $ 27,424 $ 8,400 $ 9,662
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 25 1006 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 26 1007 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-B, LTD. Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ----------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 29, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 29, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 29, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 29, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
27 1008 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Amended and Restated Certificate of Limited - Partnership of Parker & Parsley Producing Properties 87-B, Ltd. incorporated by reference to Exhibit 3a of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 4(a) Agreement of Limited Partnership of Parker & - Parsley Producing Properties 87-B, Ltd. incorporated by reference to Exhibit A of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 4(b) Subscription Agreement incorporated by - reference to Exhibit C of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 4(b) Power of Attorney incorporated by reference - to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193) 10(b) Program Agreement incorporated by reference - to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193)
28 1009 PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 435,162 $ 469,537 $ 982,604 $ 625,861 $ 532,606 $ 846,163 $ 980,232 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 35,017 $ 317,255 $ 42,277 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 197,288 $ 255,323 $ 562,621 $ 163,148 $ (118,738) $ (142,439) $ 303,380 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,973 $ 2,553 $ 5,626 $ 1,631 $ (1,187) $ (1,424) $ 3,034 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 195,315 $ 252,770 $ 556,995 $ 161,517 $ (117,551) $ (141,015) $ 300,346 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 16.02 $ 20.73 $ 45.69 $ 13.25 $ (9.64) $ (11.57) $ 24.64 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 13.77 $ 21.59 $ 48.07 $ 13.98 $ 16.41 $ 39.20 $ 35.59 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 886,112 $ 881,242 $ 860,545 $ 892,550 $ 878,401 $1,241,161 $1,823,614 ========== ========== ========== ========== ========== ========== ==========
1010 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD., A TEXAS LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Private Investment 87, Ltd. and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Private Investment 87, Ltd.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1011 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 10,480 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 16,514 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 2,600 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 248.07 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.63 times the past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 152.52 -- as of December 31, 2000(c) $ 144.05 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 230.82 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 240.60 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 177
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion must be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, and Arter & Hadden LLP of Dallas, Texas (as to matters of Texas law) for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2037, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1012 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1013 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ------------ (Unaudited) ASSETS Current assets: Cash $ 312,648 $ 94,943 Accounts receivable - oil and gas sales 157,371 169,256 ---------- ---------- Total current assets 470,019 264,199 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 7,223,861 7,234,802 Accumulated depletion (6,005,470) (5,959,961) ---------- ---------- Net oil and gas properties 1,218,391 1,274,841 ---------- ---------- $ 1,688,410 $ 1,539,040 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable: Affiliate 25,192 14,344 Other 48,900 - ---------- ---------- Total current liabilities 74,092 14,344 ---------- ---------- Partners' capital: Managing general partner 15,899 15,002 Limited partners (262 interests) 1,598,419 1,509,694 ---------- ---------- 1,614,318 1,524,696 ---------- ---------- $ 1,688,410 $ 1,539,040 ========== ==========
The financial information included as of June 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. 2 1014 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 267,604 $ 209,122 $ 562,276 $ 450,055 Interest 1,905 2,713 4,089 4,619 Gain on disposition of assets - 262 - 15,200 -------- -------- -------- -------- 269,509 212,097 566,365 469,874 -------- -------- -------- -------- Costs and expenses: Oil and gas production 111,039 96,847 222,273 201,495 General and administrative 6,918 6,274 14,619 13,502 Depletion 24,615 17,477 45,509 39,251 -------- -------- -------- -------- 142,572 120,598 282,401 254,248 -------- -------- -------- -------- Net income $ 126,937 $ 91,499 $ 283,964 $ 215,626 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,270 $ 915 $ 2,840 $ 2,156 ======== ======== ======== ======== Limited partners $ 125,667 $ 90,584 $ 281,124 $ 213,470 ======== ======== ======== ======== Net income per limited partnership interest $ 479.64 $ 345.74 $1,072.99 $ 814.77 ======== ======== ======== ========
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. 3 1015 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 15,002 $1,509,694 $1,524,696 Distributions (1,943) (192,399) (194,342) Net income 2,840 281,124 283,964 --------- --------- --------- Balance at June 30, 2001 $ 15,899 $1,598,419 $1,614,318 ========= ========= =========
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. 4 1016 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 283,964 $ 215,626 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 45,509 39,251 Gain on disposition of assets - (15,200) Changes in assets and liabilities: Accounts receivable 11,885 31,807 Accounts payable 59,748 10,825 --------- --------- Net cash provided by operating activities 401,106 282,309 --------- --------- Cash flows from investing activities: Addition to oil and gas properties (2,766) (8,504) Proceeds from asset dispositions 13,707 25,096 --------- --------- Net cash provided by investing activities 10,941 16,592 --------- --------- Cash flows used in financing activities: Cash distributions to partners (194,342) (272,447) --------- --------- Net increase in cash 217,705 26,454 Cash at beginning of period 94,943 134,914 --------- --------- Cash at end of period $ 312,648 $ 161,368 ========= =========
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. 5 1017 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Private Investment 87, Ltd. (the "Partnership") was organized in 1987 as a general partnership under the laws of the State of Texas and was converted to a Texas limited partnership in 1989. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 25% to $562,276 for the six months ended June 30, 2001 as compared to $450,055 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas 6 1018 and NGLs and an increase in production, offset by a decline in average prices received for oil. For the six months ended June 30, 2001, 13,100 barrels of oil, 5,041 barrels of natural gas liquids ("NGLs") and 25,756 mcf of gas were sold, or 22,434 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 11,148 barrels of oil, 5,758 barrels of NGLs and 23,896 mcf of gas were sold, or 20,889 BOEs. The average price received per barrel of oil decreased $1.15, or 4%, from $28.16 for the six months ended June 30, 2000 to $27.01 for the same period in 2001. The average price received per barrel of NGLs increased $2.57, or 18%, from $14.34 during the six months ended June 30, 2000 to $16.91 for the same period in 2001. The average price received per mcf of gas increased 113% from $2.24 during the six months ended June 30, 2000 to $4.78 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 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 six months ended June 30, 2001. Gain on disposition of assets of $15,200 was recognized during the six months ended June 30, 2000 resulting from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $282,401 for the six months ended June 30, 2001 as compared to $254,248 for the same period in 2000, an increase of $28,153, or 11%. This increase was due to increases in production costs, depletion and general and administrative expenses ("G&A"). Production costs were $222,273 for the six months ended June 30, 2001 and $201,495 for the same period in 2000, resulting in a $20,778 increase, or 10%. The increase was due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes due to higher gas and NGL prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 8%, from $13,502 for the six months ended June 30, 2000 to $14,619 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $45,509 for the six months ended June 30, 2001 as compared to $39,251 for the same period in 2000, an increase of $6,258, or 16%. This increase was due to an increase in oil production of 1,952 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 7 1019 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 28% to $267,604 for the three months ended June 30, 2001 as compared to $209,122 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs and an increase in production, offset by a decline in average prices received for oil. For the three months ended June 30, 2001, 6,252 barrels of oil, 3,003 barrels of NGLs and 14,371 mcf of gas were sold, or 11,650 BOEs. For the three months ended June 30, 2000, 4,518 barrels of oil, 3,059 barrels of NGLs and 12,350 mcf of gas were sold, or 9,635 BOEs. The average price received per barrel of oil decreased $2.84, or 10%, from $29.73 for the three months ended June 30, 2000 to $26.89 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.17, or 8%, from $13.97 during the three months ended June 30, 2000 to $15.14 for the same period in 2001. The average price received per mcf of gas increased 45% to $3.76 during the three months ended June 30, 2001 from $2.60 during the same period in 2000. Gain on disposition of assets of $262 was recognized during the three months ended June 30, 2000 from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $142,572 for the three months ended June 30, 2001 as compared to $120,598 for the same period in 2000, an increase of $21,974, or 18%. This increase was due to increases in production costs, depletion and G&A. Production costs were $111,039 for the three months ended June 30, 2001 and $96,847 for the same period in 2000, resulting in a $14,192 increase, or 15%. This increase was due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes due to higher gas and NGL prices. During this period, G&A increased 10%, from $6,274 for the three months ended June 30, 2000 to $6,918 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $24,615 for the three months ended June 30, 2001 compared to $17,477 for the same period in 2000, an increase of $7,138, or 41%. This increase was attributable to an increase in oil production of 1,734 barrels for the three months ended June 30, 2001 compared to the same period in 2000. 8 1020 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $118,797 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $111,691 and a reduction in working capital of $29,001, offset by increases in production costs of $20,778 and G&A expenses of $1,117. The increase in oil and gas receipts resulted from an increase in gas and NGL prices during 2001 which contributed an additional $75,534 to oil and gas receipts and $48,968 resulting from the increase in production during 2001 as compared to the same period in 2000, offset by a decline of $12,811 due to decreased oil prices during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production and increased production taxes associated with higher gas and NGL prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Provided by Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 were for expenditures related to oil and gas equipment upgrades on various oil and gas properties. Proceeds from asset dispositions of $13,707 and $25,096 recognized during the six months ended June 30, 2001 and 2000, respectively. The proceeds recognized during the period in 2001 were from equipment credits received on a temporarily abandoned well. The proceeds recognized during the period in 2000 consisted of $15,200 from equipment credits on one fully depleted well and $9,896 from credits on one active property. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $194,342, of which $1,943 was distributed to the managing general partner and $192,399 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $272,447, of which $2,724 was distributed to the managing general partner and $269,723 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 9 1021 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1022 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1023 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Private Investment 87, Ltd. (A Texas Limited Partnership): We have audited the balance sheets of Parker & Parsley Private Investment 87, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Private Investment 87, Ltd. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1024 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------------- ---------------- ASSETS ------ Current assets: Cash $ 94,943 $ 134,914 Accounts receivable - oil and gas sales 169,256 89,852 ------------ ------------- Total current assets 264,199 224,766 ------------ ------------- Oil and gas properties - at cost, based on the successful efforts accounting method 7,234,802 7,222,781 Accumulated depletion (5,959,961) (5,880,941) ------------ ------------- Net oil and gas properties 1,274,841 1,341,840 ------------ ------------- $ 1,539,040 $ 1,566,606 ============= ============== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 14,344 $ 6,764 Partners' capital: Managing general partner 15,002 15,353 Limited partners (262 interests) 1,509,694 1,544,489 ------------ ------------- 1,524,696 1,559,842 ------------ ------------- $ 1,539,040 $ 1,566,606 ============= ==============
The accompanying notes are an integral part of these financial statements. 3 1025 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ---------- ---------- ---------- Revenues: Oil and gas $1,035,947 $ 674,794 $ 568,014 Interest 10,943 5,922 6,840 Gain on disposition of assets 15,201 20,924 -- Miscellaneous income -- -- 27,020 ---------- ---------- ---------- 1,062,091 701,640 601,874 ---------- ---------- ---------- Costs and expenses: Oil and gas production 395,308 333,765 357,125 General and administrative 31,079 20,244 17,041 Impairment of oil and gas properties -- -- 176,587 Depletion 79,020 123,063 259,349 Abandoned property -- 20,129 -- ---------- ---------- ---------- 505,407 497,201 810,102 ---------- ---------- ---------- Net income (loss) $ 556,684 $ 204,439 $ (208,228) ========== ========== ========== Allocation of net income (loss): Managing general partner $ 5,567 $ 2,044 $ (2,082) ========== ========== ========== Limited partners $ 551,117 $ 202,395 $ (206,146) ========== ========== ========== Net income (loss) per limited partnership interest $ 2,103.50 $ 772.50 $ (786.82) ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 4 1026 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ------------- -------------- --------------- Partners' capital at January 1, 1998 $ 20,565 $ 2,060,412 $ 2,080,977 Distributions (2,592) (256,549) (259,141) Net loss (2,082) (206,146) (208,228) ----------- ----------- ----------- Partners' capital at December 31, 1998 15,891 1,597,717 1,613,608 Distributions (2,582) (255,623) (258,205) Net income 2,044 202,395 204,439 ----------- ----------- ----------- Partners' capital at December 31, 1999 15,353 1,544,489 1,559,842 Distributions (5,918) (585,912) (591,830) Net income 5,567 551,117 556,684 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 15,002 $ 1,509,694 $ 1,524,696 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 5 1027 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------------- -------------- -------------- Cash flows from operating activities: Net income (loss) $ 556,684 $ 204,439 $ (208,228) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion 79,020 123,063 259,349 Impairment of oil and gas properties - - 176,587 Gain on disposition of assets (15,201) (20,924) - Changes in assets and liabilities: Accounts receivable (79,404) (19,909) 44,227 Accounts payable 7,580 7,671 (37,011) ----------- ----------- ----------- Net cash provided by operating activities 548,679 294,340 234,924 ----------- ----------- ----------- Cash flows from investing activities: Additions to oil and gas properties (12,021) (1,457) (6,173) Proceeds from asset dispositions 15,201 17,049 6,923 ----------- ----------- ----------- Net cash provided by investing activities 3,180 15,592 750 ----------- ----------- ----------- Cash flows used in financing activities: Cash distributions to partners (591,830) (258,205) (259,141) ----------- ----------- ----------- Net increase (decrease) in cash (39,971) 51,727 (23,467) Cash at beginning of year 134,914 83,187 106,654 ----------- ----------- ----------- Cash at end of year $ 94,943 $ 134,914 $ 83,187 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 6 1028 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Private Investment 87, Ltd. (the "Partnership") was organized in 1987 as a general partnership under the laws of the State of Texas and was converted to a Texas limited partnership in 1989. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1029 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted and the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $176,587 related to its proved oil and gas properties during 1998. 8 1030 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $72,098 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Net income (loss) per statements of operations $ 556,684 $ 204,439 $ (208,228) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 73,725 118,474 253,944 Impairment of oil and gas properties for financial reporting purposes - - 176,587 Salvage income - - 6,923 Other, net 8,468 (6,345) 1,789 ----------- ----------- ----------- Net income per Federal income tax returns $ 638,877 $ 316,568 $ 231,015 ============ ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Development costs $ 12,021 $ 1,457 $ 6,173 =========== ============ ============
Capitalized oil and gas properties consist of the following:
2000 1999 ---------------- ---------------- Proved properties: Property acquisition costs $ 235,953 $ 235,953 Completed wells and equipment 6,998,849 6,986,828 ------------- ------------ 7,234,802 7,222,781 Accumulated depletion (5,959,961) (5,880,941) ------------- ------------ Net oil and gas properties $ 1,274,841 $ 1,341,840 ============== =============
9 1031 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 168,618 $ 164,154 $ 169,530 Reimbursement of general and administrative expenses $ 27,190 $ 13,954 $ 13,315
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- ------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1032
Oil and NGLs Gas (bbls) (mcf) -------------------- ------------------- Net proved reserves at January 1, 1998 593,108 749,623 Revisions (204,355) (192,689) Production (42,801) (58,036) ------------ ------------ Net proved reserves at December 31, 1998 345,952 498,898 Revisions 377,937 584,604 Production (40,495) (52,874) ------------ ------------ Net proved reserves at December 31, 1999 683,394 1,030,628 Revisions 114,936 (13,239) Production (35,242) (48,307) ------------ ------------ Net proved reserves at December 31, 2000 763,088 969,082 ============ ============
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.67 per barrel of NGLs and $7.76 per mcf of gas, discounted at 10% was approximately $5,193,000 and undiscounted was $12,461,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and gas producing activities: Future cash inflows $ 24,836 $ 16,945 $ 3,765 Future production costs (12,375) (9,216) (2,895) ------------- ------------ ------------- 12,461 7,729 870 10% annual discount factor (7,268) (3,837) (277) ------------- ------------ ------------- Standardized measure of discounted future net cash flows $ 5,193 $ 3,892 $ 593 ============== ============= ==============
11 1033
For the years ended December 31, ------------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (641) $ (341) $ (211) Net changes in prices and production costs 1,940 2,019 (1,560) Revisions of previous quantity estimates 766 2,931 (262) Accretion of discount 389 59 244 Changes in production rates, timing and other (1,153) (1,369) (59) ------------- ------------ ------------ Change in present value of future net revenues 1,301 3,299 (1,848) ------------- ------------ ------------- Balance, beginning of year 3,892 593 2,441 ------------- ------------ ------------ Balance, end of year $ 5,193 $ 3,892 $ 593 ============== ============= =============
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 42% 40% - Genesis Crude Oil, L.P. - - 46% Western Gas Resources, Inc. 3% 5% 23% Phillips Petroleum Company 17% 16% 13% NGTS LLC 10% 8% 1%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., Phillips Petroleum Company and NGTS LLC were $34,772, $27,567 and $3,043, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being 12 1034 paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. The managing general partner is also responsible for 1% of the guaranty and loan commitment fees. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $10,480,000. Contributions aggregating $2,822,500 were received directly from the partners in cash and the remainder was made available to the limited partners by a financial institution. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1035 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. (A TEXAS LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 54% to $1,035,947 for 2000 as compared to $674,794 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 24,016 barrels of oil, 11,226 barrels of natural gas liquids ("NGLs") and 48,307 mcf of gas were sold, or 43,293 barrel of oil equivalents ("BOEs"). In 1999, 27,432 barrels of oil, 13,063 barrels of NGLs and 52,874 mcf of gas were sold, or 49,307 BOEs. 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 increased $12.74, or 76%, from $16.82 in 1999 to $29.56 in 2000. The average price received per barrel of NGLs increased $6.76, or 72%, from $9.41 in 1999 to $16.17 in 2000. The average price received per mcf of gas increased 75% from $1.71 in 1999 to $2.99 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $15,201 during 2000 was attributable to salvage income received on two wells plugged and abandoned during 1999. Gain on disposition of assets of $20,924 during 1999 was from salvage value received on equipment from two wells plugged and abandoned during 1999. Abandoned property costs of $20,129 were incurred during 1999 related to the plugging of these two wells. Total costs and expenses increased in 2000 to $505,407 as compared to $497,201 in 1999, an increase of $8,206, or 2%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by declines in depletion and abandoned property costs. Production costs were $395,308 in 2000 and $333,765 in 1999, resulting in a $61,543 increase, or 18%. The increase was due to additional well maintenance costs incurred to stimulate well production and higher production taxes. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 54% from $20,244 in 1999 to $31,079 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $27,190 in 2000 and $13,954 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $79,020 in 2000 as compared to $123,063 in 1999, representing a decrease of $44,043, or 36%. This decrease was primarily due to a 114,527 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a decline in oil production of 3,416 barrels for the period ended December 31, 2000 compared to the same period in 1999. 1036 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 19% to $674,794 from $568,014 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 27,432 barrels of oil, 13,063 barrels of NGLs and 52,874 mcf of gas were sold, or 49,307 BOEs. In 1998, 30,005 barrels of oil, 12,796 barrels of NGLs and 58,036 mcf of gas were sold, or 52,474 BOEs. The average price received per barrel of oil increased $3.77, or 29%, from $13.05 in 1998 to $16.82 in 1999. The average price received per barrel of NGLs increased $2.86, or 44%, from $6.55 in 1998 to $9.41 in 1999. The average price received per mcf of gas increased 8% from $1.59 in 1998 to $1.71 in 1999. Gain on disposition of assets of $20,924 during 1999 was from salvage value received on equipment from two wells plugged and abandoned during 1999. Abandoned property costs of $20,129 were incurred during 1999 related to the plugging of these two wells. Miscellaneous income of $27,020 during 1998 consisted of the write-off of amounts previously recorded as accounts payable. These amounts were set aside until the Partnership reconciled payments for the initial capital contributions. Once these payments were reconciled, the liability was eliminated and the cash distributed to the partners. Total costs and expenses decreased in 1999 to $497,201 as compared to $810,102 in 1998, a decrease of $312,901, or 39%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by increases in abandoned property costs and G&A. Production costs were $333,765 in 1999 and $357,125 in 1998, resulting in a $23,360 decrease, or 7%. The decrease was due to declines in well maintenance costs and ad valorem taxes. During this period, G&A increased 19% from $17,041 in 1998 to $20,244 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $13,954 in 1999 and $13,315 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $176,587 related to its oil and gas properties during 1998. Depletion was $123,063 in 1999 compared to $259,349 in 1998, representing a decrease of $136,286, or 53%. This decrease was the result of an increase in proved reserves of 239,857 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1037 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $254,339 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $366,174 and a decline in abandoned property costs of $20,129, offset by increases in production costs paid of $61,543, G&A expenses paid of $10,835 and working capital of $59,586. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $510,519 to oil and gas receipts, offset by $144,345 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Proceeds from asset dispositions of $15,201 received in 2000 were related to salvage income received on two wells plugged and abandoned during 1999. Proceeds from asset dispositions of $17,049 received in 1999 were from equipment credits of $10,226 received on two wells plugged and abandoned during 1999 and equipment credits of $6,823 received on two active wells. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $591,830, of which $5,918 was distributed to the managing general partner and $585,912 to the limited partners. In 1999, cash distributions to the partners were $258,205, of which $2,582 was distributed to the managing general partner and $255,623 to the limited partners. 1038 PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, --------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 -------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 562,276 $ 450,055 $1,035,947 $ 674,794 $ 568,014 $ 855,114 $1,063,902 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 176,587 $ 789,277 $ -- ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 383,911 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 283,964 $ 215,626 $ 556,684 $ 204,439 $ (208,228) $ (548,407) $ 833,250 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 2,840 $ 2,156 $ 5,567 $ 2,044 $ (2,082) $ (5,484) $ 8,333 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 281,124 $ 213,470 $ 551,117 $ 202,395 $ (206,146) $ (542,923) $ 824,917 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 1,072.99 $ 814.77 $ 2,103.50 $ 772.50 $ (786.82) $(2,072.23) $ 3,148.54 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 734.35 $ 1,029.48 $ 2,236.31 $ 975.66 $ 979.19 $ 1,914.87 $ 3,562.66(a) ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,688,410 $1,530,506 $1,539,040 $1,566,606 $1,622.597 $2,126,977 $3,175,422 ========== ========== ========== ========== ========== ========== ==========
---------- (a) Including litigation settlement per limited partnership interest of $1,465.31 in 1996. 1039 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 88-A CONV., L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 88-A Conv., L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 88-A Conv., L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1040 PARKER & PARSLEY 88-A CONV., L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 3,793 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 4,250 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 923 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 246.58 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.22 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 160.19 -- as of December 31, 2000 (c) $ 150.71 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 229.03 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 239.39 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 142 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2038, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1041 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1042 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 131,616 $ 54,706 Accounts receivable - oil and gas sales 47,862 65,812 ---------- ---------- Total current assets 179,478 120,518 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,966,368 2,964,986 Accumulated depletion (2,521,577) (2,502,477) ---------- ---------- Net oil and gas properties 444,791 462,509 ---------- ---------- $ 624,269 $ 583,027 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 10,459 $ 5,544 Partners' capital: Managing general partner 6,210 5,847 Limited partners (3,793 interests) 607,600 571,636 ---------- ---------- 613,810 577,483 ---------- ---------- $ 624,269 $ 583,027 ========== ==========
The financial information included as of June 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. 2 1043 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ------------------------ ---------------------- 2001 2000 2001 2000 --------- ---------- --------- --------- Revenues: Oil and gas $ 92,519 $ 98,008 $ 226,051 $ 187,130 Interest 978 1,158 1,935 1,998 Gain on disposition of assets - - - 76 -------- --------- -------- -------- 93,497 99,166 227,986 189,204 -------- --------- -------- -------- Costs and expenses: Oil and gas production 41,744 39,806 86,072 83,567 General and administrative 2,776 2,940 6,782 5,614 Depletion 9,787 6,812 19,100 14,327 -------- --------- -------- -------- 54,307 49,558 111,954 103,508 -------- --------- -------- -------- Net income $ 39,190 $ 49,608 $ 116,032 $ 85,696 ======== ========= ======== ======== Allocation of net income: Managing general partner $ 392 $ 496 $ 1,160 $ 857 ======== ========= ======== ======== Limited partners $ 38,798 $ 49,112 $ 114,872 $ 84,839 ======== ========= ======== ======== Net income per limited partnership interest $ 10.23 $ 12.95 $ 30.29 $ 22.37 ======== ========= ======== ========
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. 3 1044 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 5,847 $ 571,636 $ 577,483 Distributions (797) (78,908) (79,705) Net income 1,160 114,872 116,032 -------- --------- --------- Balance at June 30, 2001 $ 6,210 $ 607,600 $ 613,810 ======== ========= =========
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. 4 1045 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ----------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 116,032 $ 85,696 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 19,100 14,327 Gain on disposition of assets - (76) Changes in assets and liabilities: Accounts receivable 17,950 (1,374) Accounts payable 4,915 3,770 -------- -------- Net cash provided by operating activities 157,997 102,343 -------- -------- Cash flows from investing activities: Additions to oil and gas properties (1,382) (1,620) Proceeds from asset dispositions - 76 -------- -------- Net cash used in investing activities (1,382) (1,544) -------- -------- Cash flows used in financing activities: Cash distributions to partners (79,705) (107,828) -------- -------- Net increase (decrease) in cash 76,910 (7,029) Cash at beginning of period 54,706 66,104 -------- -------- Cash at end of period $ 131,616 $ 59,075 ======== ========
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. 5 1046 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 88-A Conv., L.P. (the "Partnership") was organized in 1988 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1989. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 21% to $226,051 for the six months ended June 30, 2001 as compared to $187,130 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas 6 1047 and NGLs and an increase in production, offset by lower average prices received for oil. For the six months ended June 30, 2001, 5,145 barrels of oil, 1,881 barrels of natural gas liquids ("NGLs") and 14,063 mcf of gas were sold, or 9,370 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 4,413 barrels of oil, 2,745 barrels of NGLs and 10,700 mcf of gas were sold, or 8,941 BOEs. The average price received per barrel of oil decreased $2.10, or 7%, from $28.50 for the six months ended June 30, 2000 to $26.40 for the same period in 2001. The average price received per barrel of NGLs increased $2.38, or 17%, from $13.81 during the six months ended June 30, 2000 to $16.19 for the same period in 2001. The average price received per mcf of gas increased 94% from $2.19 for the six months ended June 30, 2000 to $4.25 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 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 six months ended June 30, 2001. Gain on disposition of assets of $76 was recognized during the six months ended June 30, 2000 resulting from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $111,954 for the six months ended June 30, 2001 as compared to $103,508 for the same period in 2000, an increase of $8,446, or 8%. This increase was due to increases in depletion, production costs and general and administrative expenses ("G&A"). Production costs were $86,072 for the six months ended June 30, 2001 and $83,567 for the same period in 2000, resulting in a $2,505 increase, or 3%. This increase was due to additional well maintenance costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices, offset by lower workover costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 21% from $5,614 for the six months ended June 30, 2000 to $6,782 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $19,100 for the six months ended June 30, 2001 as compared to $14,327 for the same period in 2000, an increase of $4,773, or 33%. This increase was due to a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices and an increase in oil production of 732 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 7 1048 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 6% to $92,519 for the three months ended June 30, 2001 as compared to $98,008 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and a decrease in production, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 2,189 barrels of oil, 954 barrels of NGLs and 5,418 mcf of gas were sold, or 4,046 BOEs. For the three months ended June 30, 2000, 2,104 barrels of oil, 1,558 barrels of NGLs and 6,015 mcf of gas were sold, or 4,665 BOEs. The average price received per barrel of oil decreased $2.22, or 8%, from $29.17 for the three months ended June 30, 2000 to $26.95 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $.61, or 4%, from $13.71 during the three months ended June 30, 2000 to $14.32 for the same period in 2001. The average price received per mcf of gas increased 43% to $3.65 during the three months ended June 30, 2001 from $2.55 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $54,307 for the three months ended June 30, 2001 as compared to $49,558 for the same period in 2000, an increase of $4,749, or 10%. This increase was due to increases in depletion and production costs, offset by a decline in G&A. Production costs were $41,744 for the three months ended June 30, 2001 and $39,806 for the same period in 2000 resulting in a $1,938 increase, or 5%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production, offset by lower production taxes due to lower oil prices. During this period, G&A decreased 6% from $2,940 for the three months ended June 30, 2000 to $2,776 for the same period in 2001, primarily due to a decrease in audit and tax fees. Depletion was $9,787 for the three months ended June 30, 2001 as compared to $6,812 for the same period in 2000, an increase in depletion of $2,975, or 44%. This increase was attributable to a decrease in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $55,654 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $38,858 and a 8 1049 reduction in working capital of $20,469, offset by increases in production costs of $2,505 and G&A expenses of $1,168. The increase in oil and gas receipts resulted from increases in gas and NGL prices of $28,568 and $19,630 resulting from the increase in production during 2001 as compared to the same period in 2000, offset by a decrease of $9,340 in oil prices during 2001. The increase in production costs was primarily due to additional well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices, offset by lower workover costs. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for equipment upgrades on various oil and gas properties. Proceeds of $76 recognized during the six months ended June 30, 2000 were from equipment credits on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $79,705, of which $797 was distributed to the managing general partner and $78,908 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $107,828, of which $1,078 was distributed to the managing general partner and $106,750 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. 9 1050 Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1051 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1052 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 88-A Conv., L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 88-A Conv., L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 88-A Conv., L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1053 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 --------------- --------------- ASSETS Current assets: Cash $ 54,706 $ 66,104 Accounts receivable - oil and gas sales 65,812 47,494 ------------- ------------- Total current assets 120,518 113,598 ------------- ------------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,964,986 2,962,354 Accumulated depletion (2,502,477) (2,471,979) ------------- ------------- Net oil and gas properties 462,509 490,375 ------------- ------------- $ 583,027 $ 603,973 ============== ============== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 5,544 $ 6,800 Partners' capital: Managing general partner 5,847 6,043 Limited partners (3,793 interests) 571,636 591,130 ------------- ------------- 577,483 597,173 ------------- ------------- $ 583,027 $ 603,973 ============== ==============
The accompanying notes are an integral part of these financial statements. 3 1054 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 418,514 $ 280,717 $ 227,119 Interest 4,636 2,657 2,966 Gain on disposition of assets 76 -- 1,875 Other income -- -- 29 --------- --------- --------- 423,226 283,374 231,989 --------- --------- --------- Costs and expenses: Oil and gas production 160,855 129,227 149,228 General and administrative 12,419 8,448 6,995 Impairment of oil and gas properties -- -- 118,823 Depletion 30,498 48,743 108,077 --------- --------- --------- 203,772 186,418 383,123 --------- --------- --------- Net income (loss) $ 219,454 $ 96,956 $(151,134) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 2,195 $ 970 $ (1,511) ========= ========= ========= Limited partners $ 217,259 $ 95,986 $(149,623) ========= ========= ========= Net income (loss) per limited partnership interest $ 57.28 $ 25.31 $ (39.45) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 1055 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- --------- --------- Partners' capital at January 1, 1998 $ 8,622 $ 846,560 $ 855,182 Distributions (1,069) (105,839) (106,908) Net loss (1,511) (149,623) (151,134) --------- --------- --------- Partners' capital at December 31, 1998 6,042 591,098 597,140 Distributions (969) (95,954) (96,923) Net income 970 95,986 96,956 --------- --------- --------- Partners' capital at December 31, 1999 6,043 591,130 597,173 Distributions (2,391) (236,753) (239,144) Net income 2,195 217,259 219,454 --------- --------- --------- Partners' capital at December 31, 2000 $ 5,847 $ 571,636 $ 577,483 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 5 1056 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 219,454 $ 96,956 $(151,134) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties -- -- 118,823 Depletion 30,498 48,743 108,077 Gain on disposition of assets (76) -- (1,875) Changes in assets and liabilities: Accounts receivable (18,318) (25,396) 25,872 Accounts payable (1,256) 1,462 (4,318) --------- --------- --------- Net cash provided by operating activities 230,302 121,765 95,445 --------- --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (2,632) (3,474) (5,091) Proceeds from disposition of assets 76 -- 4,856 --------- --------- --------- Net cash used in investing activities (2,556) (3,474) (235) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (239,144) (96,923) (106,908) --------- --------- --------- Net increase (decrease) in cash (11,398) 21,368 (11,698) Cash at beginning of year 66,104 44,736 56,434 --------- --------- --------- Cash at end of year $ 54,706 $ 66,104 $ 44,736 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1057 PARKER & PARSLEY 88-A CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 88-A Conv., L.P. (the "Partnership") was organized in 1988 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1989. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1058 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $118,823 related to its proved oil and gas properties during 1998. 8 1059 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $78,614 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Net income (loss) per statements of operations $ 219,454 $ 96,956 $ (151,134) Depletion and depreciation amounts for tax reporting purposes less than provisions for financial reporting purposes 27,183 45,310 104,973 Impairment of oil and gas properties for financial reporting purposes - - 118,823 Other, net (622) (961) 4,070 ----------- ----------- ----------- Net income per Federal income tax returns $ 246,015 $ 141,305 $ 76,732 ============ ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Development costs $ 2,632 $ 3,474 $ 5,091 ============= ============ ===========
Capitalized oil and gas properties consist of the following:
2000 1999 ---------------- ---------------- Proved properties: Property acquisition costs $ 143,766 $ 143,766 Completed wells and equipment 2,821,220 2,818,588 ------------- ------------- 2,964,986 2,962,354 Accumulated depletion (2,502,477) (2,471,979) ------------- ------------- Net oil and gas properties $ 462,509 $ 490,375 ============== ==============
9 1060 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 64,830 $ 62,056 $ 63,244 Reimbursement of general and administrative expenses $ 10,947 $ 5,872 $ 5,659
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, Parker & Parsley 88-A, L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) ----------------- ---------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 50 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 88-A, L.P. is 22.674558% and 77.325442%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) --------------- ---------------- Net proved reserves at January 1, 1998 245,336 365,368 Revisions (90,082) (90,310) Production (16,899) (25,367) -------------- -------------- Net proved reserves at December 31, 1998 138,355 249,691 Revisions 118,130 203,398 Production (17,052) (27,417) -------------- -------------- Net proved reserves at December 31, 1999 239,433 425,672 Revisions 3,043 (86,940) Production (14,604) (21,399) -------------- -------------- Net proved reserves at December 31, 2000 227,872 317,333 ============== ==============
10 1061 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $12.95 per barrel of NGLs and $7.75 per mcf of gas, discounted at 10% was approximately $1,723,000 and undiscounted was $3,515,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ---------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and gas producing activities: Future cash inflows $ 7,404 $ 5,900 $ 1,511 Future production costs (3,889) (3,311) (1,087) ------- ------- ------- 3,515 2,589 424 10% annual discount factor (1,792) (1,238) (161) ------- ------- ------- Standardized measure of discounted future net cash flows $ 1,723 $ 1,351 $ 263 ======= ======= =======
11 1062
For the years ended December 31, --------------------------------------------------- 2000 1999 1998 --------------- -------------- -------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (258) $ (151) $ (78) Net changes in prices and production costs 694 658 (635) Revisions of previous quantity estimates (75) 786 (131) Accretion of discount 135 26 104 Changes in production rates, timing and other (124) (231) (37) ------------- ------------ ------------ Change in present value of future net revenues 372 1,088 (777) ------------- ------------ ------------ Balance, beginning of year 1,351 263 1,040 ------------- ------------ ------------ Balance, end of year $ 1,723 $ 1,351 $ 263 ============== ============= =============
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 54% 50% - NGTS LLC 9% 10% - Genesis Crude Oil, L.P. - - 55% Western Gas Resources, Inc. 3% 6% 22%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. was $21,731, which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being 12 1063 paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $3,793,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1064 PARKER & PARSLEY 88-A CONV., L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000 compared to 1999 The Partnership's oil and gas revenues increased 49% to $418,514 for 2000 as compared to $280,717 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 9,403 barrels of oil, 5,201 barrels of natural gas liquids ("NGLs") and 21,399 mcf of gas were sold, or 18,171 barrel of oil equivalents ("BOEs"). In 1999, 9,977 barrels of oil, 7,075 barrels of NGLs and 27,417 mcf of gas were sold, or 21,622 BOEs. 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 increased $12.37, or 73%, from $16.91 in 1999 to $29.28 in 2000. The average price received per barrel of NGLs increased $6.00, or 65%, from $9.30 in 1999 to $15.30 in 2000. The average price received per mcf of gas increased 77% from $1.69 in 1999 to $2.99 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $76 was recognized in 2000 resulting from equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $203,772 as compared to $186,418 in 1999, an increase of $17,354, or 9%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $160,855 in 2000 and $129,227 in 1999, resulting in a $31,628 increase, or 24%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 47% from $8,448 in 1999 to $12,419 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $10,947 in 2000 and $5,872 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $30,498 in 2000 as compared to $48,743 in 1999, representing a decrease of $18,245, or 37%. This decrease was primarily due to a 13,403 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1065 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 24% to $280,717 from $227,119 in 1998. The increase in revenues resulted from higher average prices received and an increase in production. In 1999, 9,977 barrels of oil, 7,075 barrels of NGLs and 27,417 mcf of gas were sold, or 21,622 BOEs. In 1998, 10,890 barrels of oil, 6,009 barrels of NGLs and 25,367 mcf of gas were sold, or 21,127 BOEs. The average price received per barrel of oil increased $3.32, or 24%, from $13.59 in 1998 to $16.91 in 1999. The average price received per barrel of NGLs increased $2.73, or 42%, from $6.57 in 1998 to $9.30 in 1999. The average price received per mcf of gas increased 8% from $1.56 in 1998 to $1.69 in 1999. A gain on disposition of assets of $1,875 was recognized during 1998 for credits received from the disposal of oil and gas equipment on a fully depleted well. Total costs and expenses decreased in 1999 to $186,418 as compared to $383,123 in 1998, a decrease of $196,705, or 51%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $129,227 in 1999 and $149,228 in 1998, resulting in a $20,001 decrease, or 13%. The decrease was due to declines in well maintenance costs and ad valorem taxes, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 21% from $6,995 in 1998 to $8,448 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $5,872 in 1999 and $5,659 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $118,823 related to its oil and gas properties during 1998. Depletion was $48,743 in 1999 compared to $108,077 in 1998, representing a decrease of $59,334, or 55%. This decrease was the result of an increase in proved reserves of 72,170 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum Industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1066 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $108,537 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $139,776 and a decline in working capital of $4,360, offset by increases in production costs paid of $31,628 and G&A expenses paid of $3,971. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $203,232 to oil and gas receipts, offset by $63,456 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Proceeds from asset dispositions of $76 received during 2000 were due to equipment credits received on one fully depleted well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $239,144, of which $2,391 was distributed to the managing general partner and $236,753 to the limited partners. In 1999, cash distributions to the partners were $96,923, of which $969 was distributed to the managing general partner and $95,954 to the limited partners. 1067 PARKER & PARSLEY 88-A CONV., L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ------------------------ -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 226,051 $ 187,130 $ 418,514 $ 280,717 $ 227,119 $ 339,522 $ 413,924 =========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 118,823 $ 205,188 $ -- =========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 116,032 $ 85,696 $ 219,454 $ 96,956 $ (151,134) $ (97,307) $ 175,901 =========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,160 $ 857 $ 2,195 $ 970 $ (1,511) $ (973) $ 1,759 =========== ========== ========== ========== ========== ========== ========== Limited partners $ 114,872 $ 84,839 $ 217,259 $ 95,986 $ (149,623) $ (96,334) $ 174,142 =========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 30.29 $ 22.37 $ 57.28 $ 25.31 $ (39.45) $ (25.40) $ 45.91 =========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 20.80 $ 28.14 $ 62.42 $ 25.30 $ 27.90 $ 50.68 $ 57.12 =========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 624,269 $ 585,611 $ 583,027 $ 603,973 $ 602,478 $ 864,838 $1,154,160 =========== ========== ========== ========== ========== ========== ==========
1068 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 88-A, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 88-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 88-A, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1069 PARKER & PARSLEY 88-A, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 12,935 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 14,494 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 3,154 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 247.13 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.23 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 160.73 -- as of December 31, 2000 (c) $ 151.23 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 229.58 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 239.95 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 142 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2038, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1070 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, 2001 Commission File No. 33-19659-01 PARKER & PARSLEY 88-A, L.P. (Exact name of Registrant as specified in its charter) Delaware 75-2225738 ------------------------------------------ --------------------- (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 / / 1071 PARKER & PARSLEY 88-A, L.P. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................. 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12
2 1072 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 456,462 $ 193,491 Accounts receivable - oil and gas sales 163,314 224,465 ----------- ----------- Total current assets 619,776 417,956 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 10,115,996 10,111,281 Accumulated depletion (8,599,430) (8,534,409) ----------- ----------- Net oil and gas properties 1,516,566 1,576,872 ----------- ----------- $ 2,136,342 $ 1,994,828 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 35,993 $ 18,724 Partners' capital: Managing general partner 21,246 20,003 Limited partners (12,935 interests) 2,079,103 1,956,101 ----------- ----------- 2,100,349 1,976,104 ----------- ----------- $ 2,136,342 $ 1,994,828 =========== ===========
The financial information included as of June 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 1073 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 315,590 $ 334,067 $ 770,951 $ 638,135 Interest 3,450 3,963 6,784 7,078 Gain on disposition of assets - - - 259 -------- -------- -------- -------- 319,040 338,030 777,735 645,472 -------- -------- -------- -------- Costs and expenses: Oil and gas production 142,364 135,737 293,527 285,013 General and administrative 9,467 10,022 23,128 19,144 Depletion 33,264 23,217 65,021 48,798 -------- -------- -------- -------- 185,095 168,976 381,676 352,955 -------- -------- -------- -------- Net income $ 133,945 $ 169,054 $ 396,059 $ 292,517 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,340 $ 1,690 $ 3,961 $ 2,925 ======== ======== ======== ======== Limited partners $ 132,605 $ 167,364 $ 392,098 $ 289,592 ======== ======== ======== ======== Net income per limited partnership interest $ 10.25 $ 12.94 $ 30.31 $ 22.39 ======== ======== ======== ========
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. 4 1074 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 20,003 $1,956,101 $1,976,104 Distributions (2,718) (269,096) (271,814) Net income 3,961 392,098 396,059 -------- --------- --------- Balance at June 30, 2001 $ 21,246 $2,079,103 $2,100,349 ======== ========= =========
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. 5 1075 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 396,059 $ 292,517 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 65,021 48,798 Gain on disposition of assets - (259) Changes in assets and liabilities: Accounts receivable 61,151 12,158 Accounts payable 17,269 12,758 --------- --------- Net cash provided by operating activities 539,500 365,972 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (4,715) (5,524) Proceeds from asset dispositions - 259 --------- --------- Net cash used in investing activities (4,715) (5,265) --------- --------- Cash flows used in financing activities: Cash distributions to partners (271,814) (367,722) --------- --------- Net increase (decrease) in cash 262,971 (7,015) Cash at beginning of period 193,491 215,801 --------- --------- Cash at end of period $ 456,462 $ 208,786 ========= =========
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 1076 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 88-A, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 21% to $770,951 for the six months ended June 30, 2001 as compared to $638,135 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs and an increase in production, offset by lower average prices received 7 1077 for oil. For the six months ended June 30, 2001, 17,555 barrels of oil, 6,415 barrels of natural gas liquids ("NGLs") and 47,966 mcf of gas were sold, or 31,964 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 15,055 barrels of oil, 9,352 barrels of NGLs and 36,489 mcf of gas were sold, or 30,489 BOEs. The average price received per barrel of oil decreased $2.10, or 7%, from $28.50 for the six months ended June 30, 2000 to $26.40 for the same period in 2001. The average price received per barrel of NGLs increased $2.38, or 17%, from $13.81 during the six months ended June 30, 2000 to $16.19 for the same period in 2001. The average price received per mcf of gas increased 94% from $2.19 during the six months ended June 30, 2000 to $4.25 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 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 six months ended June 30, 2001. Gain on disposition of assets of $259 was recognized during the six months ended June 30, 2000 resulting from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $381,676 for the six months ended June 30, 2001 as compared to $352,955 for the same period in 2000, an increase of $28,721, or 8%. This increase was due to increases in depletion, production costs and general and administrative expenses ("G&A"). Production costs were $293,527 for the six months ended June 30, 2001 and $285,013 for the same period in 2000 resulting in an $8,514 increase, or 3%. The increase was the result of additional well maintenance costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices, offset by lower workover costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 21% from $19,144 for the six months ended June 30, 2000 to $23,128 for the same period in 2001, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $65,021 for the six months ended June 30, 2001 as compared to $48,798 for the same period in 2000, an increase of $16,223, or 33%. This increase was due to a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices and an increase in oil production of 2,500 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 8 1078 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 6% to $315,590 for the three months ended June 30, 2001 as compared to $334,067 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and a decrease in production, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 7,473 barrels of oil, 3,259 barrels of NGLs and 18,471 mcf of gas were sold, or 13,811 BOEs. For the three months ended June 30, 2000, 7,177 barrels of oil, 5,284 barrels of NGLs and 20,502 mcf of gas were sold, or 15,878 BOEs. The average price received per barrel of oil decreased $2.22, or 8%, from $29.17 for the three months ended June 30, 2000 to $26.95 for the same period in 2001. The average price received per barrel of NGLs increased $.61, or 4%, from $13.71 during the three months ended June 30, 2000 to $14.32 for the same period in 2001. The average price received per mcf of gas increased 43% from $2.55 during the three months ended June 30, 2000 to $3.65 for the same period in 2001. Costs and Expenses: Total costs and expenses increased to $185,095 for the three months ended June 30, 2001 as compared to $168,976 for the same period in 2000, an increase of $16,119, or 10%. This increase was due to increases in depletion and production costs, offset by a decline in G&A. Production costs were $142,364 for the three months ended June 30, 2001 and $135,737 for the same period in 2000 resulting in a $6,627 increase, or 5%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production, offset by lower production taxes due to lower oil prices. During this period, G&A decreased 6% from $10,022 for the three months ended June 30, 2000 to $9,467 for the same period in 2001, primarily due to a decrease in audit and tax fees. Depletion was $33,264 for the three months ended June 30, 2001 as compared to $23,217 for the same period in 2000, an increase of $10,047, or 43%. This increase was due to a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $173,528 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was primarily due to an increase of $132,522 in oil and gas sales receipts and a reduction in working capital of $53,504, offset by increases in production costs of $8,514 and G&A expenses of $3,984. The increase in oil and gas receipts resulted from increases in gas and NGL prices of $97,373 and $67,182 resulting from an increase in production during 2001 as compared to the same period in 2000, offset by a decrease of $32,033 in oil prices during 2001. 9 1079 The increase in production costs was primarily due to additional well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices, offset by lower workover costs. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $259 received during the six months ended June 30, 2000 were due to equipment credits received on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $271,814, of which $2,718 was distributed to the managing general partner and $269,096 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $367,722, of which $3,677 was distributed to the managing general partner and $364,045 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No 10 1080 solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 1081 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) SIGNATURES 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 88-A, L.P. By: Pioneer Natural Resources USA, Inc. Managing General Partner Dated: August 6, 2001 By: /s/ Rich Dealy --------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1082 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-19659-01 PARKER & PARSLEY 88-A, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2225738 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------ (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $12,762,000. As of March 8, 2001, the number of outstanding limited partnership interests was 12,935. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1083 PART I ITEM 1. BUSINESS Parker & Parsley 88-A, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 12,935 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segments other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 54% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and 2 1084 ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located in the Spraberry Trend area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 40 oil and gas wells. At December 31, 2000, 39 wells were producing with one well plugged and abandoned. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1085 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 12,935 outstanding limited partnership interests held of record by 981 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations, are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $807,385 and $327,220, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- Operating results: ----------------- Oil and gas sales $ 1,428,374 $ 957,278 $ 774,533 $ 1,157,862 $ 1,411,568 ========== ========= ========== ========== ========== Impairment of oil and gas properties $ - $ - $ 405,308 $ 699,976 $ - ========== ========= ========== ========= ========== Net income (loss) $ 749,290 $ 331,033 $ (514,812) $ (331,171) $ 600,634 ========== ========= ========== ========= ========== Allocation of net income (loss): Managing general partner $ 7,493 $ 3,310 $ (5,148) $ (3,312) $ 6,006 ========== ========= ========== ========= ========== Limited partners $ 741,797 $ 327,723 $ (509,664) $ (327,859) $ 594,628 ========== ========= ========== ========= ========== Limited partners' net income (loss) per limited partnership interest $ 57.35 $ 25.34 $ (39.40) $ (25.35) $ 45.97 ========== ========= ========== ========= ========== Limited partners' cash distributions per limited partnership interest $ 62.42 $ 25.30 $ 27.90 $ 50.68 $ 57.12 ========== ========= ========== ========= ========= At year end: ----------- Identifiable assets $ 1,994,828 $ 2,065,363 $ 2,059,502 $ 2,953,618 $3,940,216 ========== ========== ========== ========== =========
4 1086 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 49% to $1,428,374 for 2000 as compared to $957,278 in 1999. The increase in revenues resulted from higher average prices received, offset by a decrease in production. In 2000, 32,063 barrels of oil, 17,745 barrels of natural gas liquids ("NGLs") and 72,965 mcf of gas were sold, or 61,969 barrel of oil equivalents ("BOEs"). In 1999, 34,020 barrels of oil, 24,121 barrels of NGLs and 93,498 mcf of gas were sold, or 73,724 BOEs. 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 increased $12.37, or 73%, from $16.91 in 1999 to $29.28 in 2000. The average price received per barrel of NGLs increased $6.00, or 65%, from $9.30 in 1999 to $15.30 in 2000. The average price received per mcf of gas increased 77% from $1.69 in 1999 to $2.99 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $259 was recognized in 2000 resulting from equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $695,576 as compared to $635,628 in 1999, an increase of $59,948, or 9%. The increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $548,561 in 2000 and $440,670 in 1999, resulting in an increase of $107,891, or 24%. The increase was primarily due to additional well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 50% from $28,692 in 1999 to $42,987 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $37,340 in 2000 and $20,027 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $104,028 in 2000 as compared to $166,266 in 1999, representing a decrease of $62,238, or 37%. This decrease was primarily due to a 45,809 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 24% to $957,278 from $774,533 in 1998. 5 1087 The increase in revenues resulted from higher average prices received and an increase in production. In 1999, 34,020 barrels of oil, 24,121 barrels of NGLs and 93,498 mcf of gas were sold, or 73,724 BOEs. In 1998, 37,135 barrels of oil, 20,500 barrels of NGLs and 86,501 mcf of gas were sold, or 72,052 BOEs. The average price received per barrel of oil increased $3.32, or 24%, from $13.59 in 1998 to $16.91 in 1999. The average price received per barrel of NGLs increased $2.73, or 42%, from $6.57 in 1998 to $9.30 in 1999. The average price received per mcf of gas increased 8% from $1.56 in 1998 to $1.69 in 1999. A gain on disposition of assets of $6,393 was recognized in 1998 for credits received from the disposal of oil and gas equipment on a fully depleted well. Total costs and expenses decreased in 1999 to $635,628 as compared to $1,306,368 in 1998, a decrease of $670,740, or 51%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A expenses. Production costs were $440,670 in 1999 and $508,919 in 1998, resulting in a $68,249 decrease, or 13%. The decrease was due to reductions in well maintenance costs and ad valorem taxes, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 22% from $23,611 in 1998 to $28,692 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $20,027 in 1999 and $19,297 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $405,308 related to its oil and gas properties during 1998. Depletion was $166,266 in 1999 compared to $368,530 in 1998, representing a decrease of $202,264, or 55%. This decrease was the result of an increase in proved reserves of 246,048 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but 6 1088 to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $401,553 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $477,946 and a decline in working capital of $45,793, offset by increases in production costs paid of $107,891 and G&A expenses paid of $14,295. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $694,183 to oil and gas receipts, offset by $216,237 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 were related to expenditures for oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $259 received in 2000 were due to equipment credits received on one fully depleted well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $815,540, of which $8,155 was distributed to the managing general partner and $807,385 to the limited partners. In 1999, cash distributions to the partners were $330,525, of which $3,305 was distributed to the managing general partner and $327,220 to the limited partners. 7 1089 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 88-A, L.P.: Independent Auditors' Report...................................................... 9 Balance Sheets as of December 31, 2000 and 1999................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998............................................................. 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................ 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998............................................................. 13 Notes to Financial Statements..................................................... 14
8 1090 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 88-A, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 88-A, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 88-A, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 1091 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------- ---------- ASSETS ------ Current assets: Cash $ 193,491 $ 215,801 Accounts receivable - oil and gas sales 224,465 177,635 ---------- ---------- Total current assets 417,956 393,436 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 10,111,281 10,102,308 Accumulated depletion (8,534,409) (8,430,381) ---------- ---------- Net oil and gas properties 1,576,872 1,671,927 ---------- ---------- $ 1,994,828 $ 2,065,363 ========== ========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 18,724 $ 23,009 Partners' capital: Managing general partner 20,003 20,665 Limited partners (12,935 interests) 1,956,101 2,021,689 ---------- ---------- 1,976,104 2,042,354 ---------- ---------- $ 1,994,828 $ 2,065,363 ========== ==========
The accompanying notes are an integral part of these financial statements. 10 1092 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 -------- -------- -------- Revenues: Oil and gas $1,428,374 $ 957,278 $ 774,533 Interest 16,233 9,383 10,531 Gain on disposition of assets 259 - 6,393 Other - - 99 --------- --------- --------- 1,444,866 966,661 791,556 --------- --------- --------- Costs and expenses: Oil and gas production 548,561 440,670 508,919 General and administrative 42,987 28,692 23,611 Impairment of oil and gas properties - - 405,308 Depletion 104,028 166,266 368,530 --------- --------- --------- 695,576 635,628 1,306,368 --------- --------- --------- Net income (loss) $ 749,290 $ 331,033 $ (514,812) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 7,493 $ 3,310 $ (5,148) ========= ========= ========= Limited partners $ 741,797 $ 327,723 $ (509,664) ========= ========= ========= Net income (loss) per limited partnership interest $ 57.35 $ 25.34 $ (39.40) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 11 1093 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------- ---------- ---------- Partners' capital at January 1, 1998 $ 29,454 $ 2,891,783 $ 2,921,237 Distributions (3,646) (360,933) (364,579) Net loss (5,148) (509,664) (514,812) -------- ---------- ---------- Partners' capital at December 31, 1998 20,660 2,021,186 2,041,846 Distributions (3,305) (327,220) (330,525) Net income 3,310 327,723 331,033 -------- ---------- ---------- Partners' capital at December 31, 1999 20,665 2,021,689 2,042,354 Distributions (8,155) (807,385) (815,540) Net income 7,493 741,797 749,290 -------- ---------- ---------- Partners' capital at December 31, 2000 $ 20,003 $ 1,956,101 $ 1,976,104 ======== ========== ==========
The accompanying notes are an integral part of these financial statements. 12 1094 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------- --------- -------- Cash flows from operating activities: Net income (loss) $ 749,290 $ 331,033 $(514,812) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 405,308 Depletion 104,028 166,266 368,530 Gain on disposition of assets (259) - (6,393) Changes in assets and liabilities: Accounts receivable (46,830) (102,261) 78,333 Accounts payable (4,285) 5,353 (14,725) -------- --------- -------- Net cash provided by operating activities 801,944 400,391 316,241 -------- --------- -------- Cash flows from investing activities: Additions to oil and gas properties (8,973) (11,847) (17,362) Proceeds from asset dispositions 259 - 16,559 -------- --------- -------- Net cash used in investing activities (8,714) (11,847) (803) -------- --------- -------- Cash flows used in financing activities: Cash distributions to partners (815,540) (330,525) (364,579) -------- --------- -------- Net increase (decrease) in cash (22,310) 58,019 (49,141) Cash at beginning of year 215,801 157,782 206,923 -------- --------- -------- Cash at end of year $ 193,491 $ 215,801 $ 157,782 ======== ========= ========
The accompanying notes are an integral part of these financial statements. 13 1095 PARKER & PARSLEY 88-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 88-A, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 1096 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $405,308 related to its proved oil and gas properties during 1998. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $267,761 greater than the tax basis at December 31, 2000. 15 1097 The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------- -------- --------- Net income (loss) per statements of operations $ 749,290 $ 331,033 $ (514,812) Depletion and depreciation for tax reporting purposes less than provisions for financial reporting purposes 92,722 154,558 357,942 Impairment of oil and gas properties for financial reporting purposes - - 405,308 Other, net (2,176) (2,693) 13,320 -------- -------- --------- Net income per Federal income tax returns $ 839,836 $ 482,898 $ 261,758 ======== ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- --------- -------- Development costs $ 8,973 $ 11,847 $ 17,362 ======== ========= ========
Capitalized oil and gas properties consist of the following:
2000 1999 ---------- ---------- Proved properties: Property acquisition costs $ 490,279 $ 490,279 Completed wells and equipment 9,621,002 9,612,029 ---------- ---------- 10,111,281 10,102,308 Accumulated depletion (8,534,409) (8,430,381) ---------- ---------- Net oil and gas properties $ 1,576,872 $ 1,671,927 ========== ==========
16 1098 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- ---------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 221,084 $ 211,623 $ 215,684 Reimbursement of general and administrative expenses $ 37,340 $ 20,027 $ 19,297
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, Parker & Parsley 88-A Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) ---------------- ---------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 173 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 88-A Conv., L.P. is 77.325442% and 22.674558%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 1099
Oil and NGLs Gas (bbls) (mcf) ------------- ----------- Net proved reserves at January 1, 1998 836,39 1,245,602 Revisions (307,084) (307,863) Production (57,635) (86,501) ------------- ----------- Net proved reserves at December 31, 1998 471,675 851,238 Revisions 402,731 693,436 Production (58,141) (93,498) ------------- ----------- Net proved reserves at December 31, 1999 816,265 1,451,176 Revisions 10,578 (296,099) Production (49,808) (72,965) ------------- ----------- Net proved reserves at December 31, 2000 777,035 1,082,112 ============= ===========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $12.95 per barrel of NGLs and $7.75 per mcf of gas, discounted at 10% was approximately $5,875,000 and undiscounted was $11,988,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------ 2000 1999 1998 --------- --------- --------- (in thousands) Oil and gas producing activities: Future cash inflows $ 25,247 $ 20,115 $ 5,153 Future production costs (13,258) (11,289) (3,707) --------- --------- --------- 11,989 8,826 1,446 10% annual discount factor (6,114) (4,222) (550) --------- --------- --------- Standardized measure of discounted future net cash flows $ 5,875 $ 4,604 $ 896 ========= ========= ========
18 1100
For the years ended December 31, ------------------------------------ 2000 1999 1998 --------- ---------- --------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (880) $ (517) $ (266) Net changes in prices and production costs 2,367 2,244 (2,296) Revisions of estimated future development costs - - (237) Revisions of previous quantity estimates (253) 2,680 (474) Accretion of discount 460 89 355 Changes in production rates, timing and other (423) (788) 269 --------- ---------- --------- Change in present value of future net revenues 1,271 3,708 (2,649) --------- ---------- --------- Balance, beginning of year 4,604 896 3,545 --------- ---------- --------- Balance, end of year $ 5,875 $ 4,604 $ 896 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 54% 50% - NGTS LLC 9% 10% 3% Genesis Crude Oil, L.P. - - 55% Western Gas Resources, Inc. 3% 6% 22%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $74,114, which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general 19 1101 partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $12,935,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 1102 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 1103 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 1104 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated approximately 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 173 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 1105 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 221,084 $ 211,623 $ 215,684 Reimbursement of general and administrative expenses $ 37,340 $ 20,027 $ 19,297
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 1106 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 1107 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 88-A, L.P. Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 23, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 23, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 23, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 23, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
26 1108 PARKER & PARSLEY 88-A, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Amended and Restated Certificate and - Agreement of Limited Partnership of Parker & Parsley 88-A, L.P. incorporated by reference to Exhibit A of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-19659) 4(b) Form of Subscription Agreement and - Power of Attorney incorporated by reference to Exhibit D of the Partnership's Registration Statement on Form S-1 (Registration No. 33-19659) (hereinafter called the Partnership's Registration Statement) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit D of the Partnership's Registration Statement 10(b) Exploration and Development Program - Agreement incorporated by reference to Exhibit C of the Partnership's Registration Statement
27 1109 PARKER & PARSLEY 88-A, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ------------------------ -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 770,951 $ 638,135 $1,428,374 $ 957,278 $ 774,533 $1,157,862 $1,411,568 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 405,308 $ 699,976 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 396,059 $ 292,517 $ 749,290 $ 331,033 $ (514,812) $ (331,171) $ 600,634 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,961 $ 2,925 $ 7,493 $ 3,310 $ (5,148) $ (3,312) $ 6,006 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 392,098 $ 289,592 $ 741,797 $ 327,723 $ (509,664) $ (327,859) $ 594,628 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 30.31 $ 22.39 $ 57.35 $ 25.34 $ (39.40) $ (25.35) $ 45.97 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 20.80 $ 28.14 $ 62.42 $ 25.30 $ 27.90 $ 50.68 $ 57.12 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $2,136,342 $2,002,916 $1,994,828 $2,065,363 $2,059,502 $2,953,618 $3,940,216 ========== ========== ========== ========== ========== ========== ==========
1110 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 88-B CONV., L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 88-B Conv., L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 88-B Conv., L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1111 PARKER & PARSLEY 88-B CONV., L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 3,636 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 4,108 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,233 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 341.05 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.55 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 152.48 -- as of December 31, 2000 (c) $ 144.77 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 318.30 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 331.00 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 145 (c), (f)
----------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2038, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1112 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1113 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 127,199 $ 58,050 Accounts receivable - oil and gas sales 56,185 80,619 ---------- ---------- Total current assets 183,384 138,669 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,749,980 2,824,029 Accumulated depletion (2,364,231) (2,424,313) ---------- ---------- Net oil and gas properties 385,749 399,716 ---------- ---------- $ 569,133 $ 538,385 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 9,122 $ 6,684 Partners' capital: Managing general partner 5,591 5,308 Limited partners (3,636 interests) 554,420 526,393 ---------- ---------- 560,011 531,701 ---------- ---------- $ 569,133 $ 538,385 ========== ==========
The financial information included as of June 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. 2 1114 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ----------------------- ---------------------- 2001 2000 2001 2000 ---------- ---------- --------- ---------- Revenues: Oil and gas $ 116,624 $ 122,939 $ 249,201 $ 240,056 Interest 880 1,231 1,982 2,078 Gain on disposition of assets 3,190 3,592 3,190 3,592 --------- --------- -------- --------- 120,694 127,762 254,373 245,726 --------- --------- -------- --------- Costs and expenses: Oil and gas production 52,202 46,638 94,594 83,261 General and administrative expenses 2,916 3,575 6,230 7,202 Depletion 8,579 6,411 14,915 14,415 Abandoned property 4,159 - 4,159 - --------- --------- -------- --------- 67,856 56,624 119,898 104,878 --------- --------- -------- --------- Net income $ 52,838 $ 71,138 $ 134,475 $ 140,848 ========= ========= ======== ========= Allocation of net income: Managing general partner $ 529 $ 711 $ 1,345 $ 1,408 ========= ========= ======== ========= Limited partners $ 52,309 $ 70,427 $ 133,130 $ 139,440 ========= ========= ======== ========= Net income per limited partnership interest $ 14.38 $ 19.37 $ 36.61 $ 38.35 ========= ========= ======== =========
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. 3 1115 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 5,308 $ 526,393 $ 531,701 Distributions (1,062) (105,103) (106,165) Net income 1,345 133,130 134,475 -------- --------- --------- Balance at June 30, 2001 $ 5,591 $ 554,420 $ 560,011 ======== ========= =========
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. 4 1116 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 134,475 $ 140,848 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 14,915 14,415 Gain on disposition of assets (3,190) (3,592) Changes in assets and liabilities: Accounts receivable 24,434 (12,387) Accounts payable 3,424 3,746 --------- --------- Net cash provided by operating activities 174,058 143,030 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (1,184) (2,208) Proceeds from asset dispositions 2,440 3,592 --------- --------- Net cash provided by investing activities 1,256 1,384 --------- --------- Cash flows used in financing activities: Cash distributions to partners (106,165) (142,879) --------- --------- Net increase in cash 69,149 1,535 Cash at beginning of period 58,050 59,846 --------- --------- Cash at end of period $ 127,199 $ 61,381 ========= =========
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. 5 1117 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 88-B Conv., L.P. (the "Partnership") was organized in 1988 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1989. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Revenues: Six months ended June 30, 2001 compared with six months ended June 30, 2000 The Partnership's oil and gas revenues increased 4% to $249,201 for the six months ended June 30, 2001 as compared to $240,056 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by 6 1118 a decrease in production. For the six months ended June 30, 2001, 5,840 barrels of oil, 1,903 barrels of natural gas liquids ("NGLs") and 8,437 mcf of gas were sold, or 9,149 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 6,703 barrels of oil, 2,606 barrels of NGLs and 10,843 mcf of gas were sold, or 11,116 BOEs. The average price received per barrel of oil increased $1.33, or 5%, from $26.91 for the six months ended June 30, 2000 to $28.24 for the same period in 2001. The average price received per barrel of NGLs increased $3.39, or 24%, from $14.08 during the six months ended June 30, 2000 to $17.47 for the same period in 2001. The average price received per mcf of gas increased 184% from $2.12 during the six months ended June 30, 2000 to $6.03 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 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 six months ended June 30, 2001. Gain on disposition of assets of $3,190 was received during the six months ended June 30, 2001 due to the sale of equipment on one well plugged and abandoned during the current period. Abandoned property costs of $4,159 were also incurred during the same period to plug and abandon this well. A gain of $3,592 was recognized during the same period in 2000 from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $119,898 for the six months ended June 30, 2001 as compared to $104,878 for the same period in 2000, an increase of $15,020, or 14%. This increase was due to increases in production costs, abandoned property costs and depletion, offset by a decline in general and administrative expenses ("G&A"). Production costs were $94,594 for the six months ended June 30, 2001 and $83,261 for the same period in 2000, resulting in an $11,333 increase, or 14%. The increase was due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 13% from $7,202 for the six months ended June 30, 2000 to $6,230 for the same period in 2001. This decrease was due to a decline in audit and tax fees. Depletion was $14,915 for the six months ended June 30, 2001 as compared to $14,415 for the same period in 2000, an increase of $500, or 3%. This increase was due to a decrease in proved reserves during the period ended June 30, 2000 due to lower commodity prices, offset by a decrease in oil production of 863 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 7 1119 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $116,624 for the three months ended June 30, 2001 as compared to $122,939 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and a decrease in production, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 3,097 barrels of oil, 963 barrels of NGLs and 4,937 mcf of gas were sold, or 4,883 BOEs. For the three months ended June 30, 2000, 3,357 barrels of oil, 1,285 barrels of NGLs and 5,144 mcf of gas were sold, or 5,499 BOEs. The average price received per barrel of oil decreased $.56, or 2%, from $27.42 for the three months ended June 30, 2000 to $26.86 for the same period in June 30, 2001. The average price received per barrel of NGLs increased $1.22, or 9%, from $13.81 during the three months ended June 30, 2000 to $15.03 for the same period in 2001. The average price received per mcf of gas increased 50% to $3.83 during the three months ended June 30, 2001 from $2.55 during the same period in 2000. Gain on disposition of assets of $3,190 was received during the three months ended June 30, 2001 due to the sale of equipment on one well plugged and abandoned during the current period. Abandoned property costs of $4,159 were also incurred during the same period to plug and abandon this well. A gain of $3,592 was recognized during the same period in 2000 from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $67,856 for the three months ended June 30, 2001 as compared to $56,624 for the same period in 2000, an increase of $11,232, or 20%. This increase was due to increases in production costs, abandoned property costs and depletion, offset by a decline in G&A. Production costs were $52,202 for the three months ended June 30, 2001 and $46,638 for the same period in 2000, resulting in a $5,564 increase, or 12%. The increase was due to additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A decreased 18% from $3,575 for the three months ended June 30, 2000 to $2,916 for the same period in 2001 primarily due to a lower allocation 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 a decrease in audit and tax fees. Depletion was $8,579 for the three months ended June 30, 2001 as compared to $6,411 for the same period in 2000, an increase of $2,168, or 34%. This increase was attributable to a decrease in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decline in oil production of 260 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 8 1120 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $31,028 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $9,049 and reductions of $972 in G&A expenses and $36,499 in working capital, offset by increases in production costs of $11,333 and abandoned property costs of $4,159. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $60,241 to oil and gas receipts, offset by $51,192 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The decrease in G&A was due to a decline in audit and tax fees. Net Cash Provided by Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for equipment upgrades on various oil and gas properties. Proceeds from disposition of assets of $2,440 was recognized during the six months ended June 30, 2001. The gain was comprised of $2,227 received from the sale of equipment on one well plugged and abandoned during the current period and $213 from equipment credits received on two active wells. Proceeds of $3,592 were received during the same period in 2000 from equipment credits on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $106,165, of which $1,062 was distributed to the managing general partner and $105,103 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $142,879, of which $1,429 was distributed to the managing general partner and $141,450 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge 9 1121 with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1122 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1123 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 88-B Conv., L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 88-B Conv., L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 88-B Conv., L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1124 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 -------------- -------------- ASSETS ------ Current assets: Cash $ 58,050 $ 59,846 Accounts receivable - oil and gas sales 80,619 47,842 ----------- ----------- Total current assets 138,669 107,688 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,824,029 2,894,900 Accumulated depletion (2,424,313) (2,470,345) ----------- ----------- Net oil and gas properties 399,716 424,555 ----------- ----------- $ 538,385 $ 532,243 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 6,684 $ 8,672 Partners' capital: Managing general partner 5,308 5,227 Limited partners (3,636 interests) 526,393 518,344 ----------- ----------- 531,701 523,571 ----------- ----------- $ 538,385 $ 532,243 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1125 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 535,228 $ 291,390 $ 234,942 Interest 5,043 2,697 3,084 Gain on disposition of assets 7,186 - 63 ---------- ---------- ---------- 547,457 294,087 238,089 ---------- ---------- ---------- Costs and expenses: Oil and gas production 174,071 146,805 158,704 General and administrative 15,875 8,615 7,091 Impairment of oil and gas properties - - 156,111 Depletion 27,450 42,399 114,895 Abandoned property 2,755 - - ---------- ---------- ---------- 220,151 197,819 436,801 ---------- ---------- ---------- Net income (loss) $ 327,306 $ 96,268 $ (198,712) ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,273 $ 963 $ (1,987) ========== ========== ========== Limited partners $ 324,033 $ 95,305 $ (196,725) ========== ========== ========== Net income (loss) per limited partnership interest $ 89.12 $ 26.21 $ (54.10) ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 4 1126 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ----------- ------------ ----------- Partners' capital at January 1, 1998 $ 8,195 $ 812,239 $ 820,434 Distributions (882) (87,329) (88,211) Net loss (1,987) (196,725) (198,712) ---------- ----------- ---------- Partners' capital at December 31, 1998 5,326 528,185 533,511 Distributions (1,062) (105,146) (106,208) Net income 963 95,305 96,268 ---------- ----------- ---------- Partners' capital at December 31, 1999 5,227 518,344 523,571 Distributions (3,192) (315,984) (319,176) Net income 3,273 324,033 327,306 ---------- ----------- ---------- Partners' capital at December 31, 2000 $ 5,308 $ 526,393 $ 531,701 ========== =========== ==========
The accompanying notes are an integral part of these financial statements. 5 1127 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------------ ----------- ----------- Cash flows from operating activities: Net income (loss) $ 327,306 $ 96,268 $ (198,712) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 156,111 Depletion 27,450 42,399 114,895 Gain on disposition of assets (7,186) - (63) Changes in assets and liabilities: Accounts receivable (32,777) (18,949) 10,720 Accounts payable (1,988) 1,575 (4,516) ----------- ---------- ----------- Net cash provided by operating activities 312,805 121,293 78,435 ----------- ---------- ----------- Cash flows from investing activities: Additions to oil and gas properties (2,611) (3,396) (6,118) Proceeds from disposition of assets 7,186 4,369 63 ----------- ---------- ----------- Net cash provided by (used in) investing activities 4,575 973 (6,055) ----------- ---------- ----------- Cash flows used in financing activities: Cash distributions to partners (319,176) (106,208) (88,211) ----------- ---------- ----------- Net increase (decrease) in cash (1,796) 16,058 (15,831) Cash at beginning of year 59,846 43,788 59,619 ----------- ---------- ----------- Cash at end of year $ 58,050 $ 59,846 $ 43,788 =========== ========== ===========
The accompanying notes are an integral part of these financial statements. 6 1128 PARKER & PARSLEY 88-B CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 88-B Conv., L.P. (the "Partnership") was organized in 1988 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1989. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1129 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $156,111 related to its proved oil and gas properties during 1998. 8 1130 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $30,771 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ----------- ----------- ----------- Net income (loss) per statements of operations $ 327,306 $ 96,268 $ (198,712) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 23,646 38,232 111,242 Impairment of oil and gas properties for financial reporting purposes - - 156,111 Other, net (1,011) 3,526 477 ---------- ---------- ---------- Net income per Federal income tax returns $ 349,941 $ 138,026 $ 69,118 ========== ========== ==========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ----------- ----------- ----------- Development costs $ 2,611 $ 3,396 $ 6,118 ========== ========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999 ------------- ------------- Proved properties: Property acquisition costs $ 173,265 $ 178,368 Completed wells and equipment 2,650,764 2,716,532 ------------ ------------ 2,824,029 2,894,900 Accumulated depletion (2,424,313) (2,470,345) ------------ ------------ Net oil and gas properties $ 399,716 $ 424,555 ============ ============
9 1131 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ----------- ----------- ----------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 64,694 $ 63,771 $ 61,312 Reimbursement of general and administrative expenses $ 13,920 $ 5,293 $ 5,608
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, Parker & Parsley 88-B, L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) ------------------- -------------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 20 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 88-B, L.P. is 28.880064% and 71.119936%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------ ------------ Net proved reserves at January 1, 1998 214,797 248,651 Revisions (87,571) (74,562) Production (17,610) (21,214) ------------ ------------ Net proved reserves at December 31, 1998 109,616 152,875 Revisions 152,579 224,938 Production (16,986) (23,221) ------------ ------------ Net proved reserves at December 31, 1999 245,209 354,592 Revisions 46,611 24,276 Production (18,572) (21,781) ------------ ------------ Net proved reserves at December 31, 2000 273,248 357,087 ============ ============
10 1132 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.59 per barrel of NGLs and $7.85 per mcf of gas, discounted at 10% was approximately $2,098,000 and undiscounted was $4,398,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, --------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ (in thousands) Oil and gas producing activities: Future cash inflows $ 8,963 $ 6,119 $ 1,201 Future production costs (4,565) (3,521) (930) ----------- ----------- ----------- 4,398 2,598 271 10% annual discount factor (2,300) (1,240) (85) ----------- ----------- ----------- Standardized measure of discounted future net cash flows $ 2,098 $ 1,358 $ 186 =========== =========== ===========
11 1133
For the years ended December 31, --------------------------------------------- 2000 1999 1998 ------------ ------------- ------------ (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (361) $ (144) $ (76) Net changes in prices and production costs 775 595 (519) Revisions of previous quantity estimates 350 1,112 (114) Accretion of discount 136 19 84 Changes in production rates, timing and other (160) (410) (31) ----------- ------------ ----------- Change in present value of future net revenues 740 1,172 (656) ----------- ------------ ----------- Balance, beginning of year 1,358 186 842 ----------- ------------ ----------- Balance, end of year $ 2,098 $ 1,358 $ 186 =========== ============ ===========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 50% 44% - Genesis Crude Oil, L.P. - - 49% Western Gas Resources, Inc. 3% 5% 17%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $25,238 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 12 1134 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $3,636,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1135 PARKER & PARSLEY 88-B CONV., L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 84% to $535,228 for 2000 as compared to $291,390 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 13,209 barrels of oil, 5,363 barrels of natural gas liquids ("NGLs") and 21,781 mcf of gas were sold, or 22,202 barrel of oil equivalents ("BOEs"). In 1999, 11,400 barrels of oil, 5,586 barrels of NGLs and 23,221 mcf of gas were sold, or 20,856 BOEs. 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 increased $12.12, or 71%, from $17.17 in 1999 to $29.29 in 2000. The average price received per barrel of NGLs increased $5.99, or 60%, from $10.03 in 1999 to $16.02 in 2000. The average price received per mcf of gas increased 69% from $1.70 in 1999 to $2.87 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $7,186 was recognized during 2000. The gain was comprised of $5,981 received from the sale of equipment on one well plugged and abandoned during the current period and $1,205 from equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $220,151 as compared to $197,819 in 1999, an increase of $22,332, or 11%. The increase was due to increases in production costs, general and administrative expenses ("G&A") and abandoned property costs, offset by a decline in depletion. Production costs were $174,071 in 2000 and $146,805 in 1999, resulting in a $27,266 increase, or 19%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional workover and well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 84% from $8,615 in 1999 to $15,875 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $13,920 in 2000 and $5,293 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $27,450 in 2000 as compared to $42,399 in 1999, representing a decrease of $14,949, or 35%. This decrease was primarily due to a 35,962 barrels of oil increase in proved reserves during 2000 due to higher commodity prices, offset by an increase in oil production of 1,809 barrels for the period ended December 31, 2000 compared to the same period in 1999. Abandoned property costs of $2,755 were incurred during 2000 due to the plugging and abandonment of one well during 1136 the current period. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 24% to $291,390 from $234,942 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 11,400 barrels of oil, 5,586 barrels of NGLs and 23,221 mcf of gas were sold, or 20,856 BOEs. In 1998, 12,653 barrels of oil, 4,957 barrels of NGLs and 21,214 mcf of gas were sold, or 21,146 BOEs. The average price received per barrel of oil increased $3.93, or 30%, from $13.24 in 1998 to $17.17 in 1999. The average price received per barrel of NGLs increased $3.12, or 45%, from $6.91 in 1998 to $10.03 in 1999. The average price received per mcf of gas increased 9% from $1.56 in 1998 to $1.70 in 1999. Total costs and expenses decreased in 1999 to $197,819 as compared to $436,801 in 1998, a decrease of $238,982, or 55%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $146,805 in 1999 and $158,704 in 1998, resulting in an $11,899 decrease, or 7%. The decrease was due to declines in well maintenance costs, workover costs and ad valorem taxes, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 21% from $7,091 in 1998 to $8,615 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $5,293 in 1999 and $5,608 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $156,111 related to its oil and gas properties during 1998. Depletion was $42,399 in 1999 compared to $114,895 in 1998, representing a decrease of $72,496, or 63%. This decrease was the result of a combination of factors that included an increase in proved reserves of 100,955 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 1,253 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1137 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $191,512 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $246,184, offset by increases in production costs paid of $27,266, G&A expenses paid of $7,260 abandoned property costs paid of $2,755 and working capital of $17,391. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $200,923 to oil and gas receipts and an increase of $45,261 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 were related to equipment upgrades on active properties. Proceeds from disposition of assets of $7,186 were recognized during 2000. The proceeds were comprised of $5,981 received from the sale of equipment on one well plugged and abandoned during the current period and $1,205 from equipment credits received on one active well. Proceeds of $4,369 during 1999 were primarily related to equipment dispositions on one oil and gas well that is temporarily abandoned. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $319,176, of which $3,192 was distributed to the managing general partner and $315,984 to the limited partners. In 1999, cash distributions to the partners were $106,208, of which $1,062 was distributed to the managing general partner and $105,146 to the limited partners. 1138 PARKER & PARSLEY 88-B CONV., L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 249,201 $ 240,056 $ 535,228 $ 291,390 $ 234,942 $ 329,125 $ 427,360 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 156,111 $ 222,425 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 134,475 $ 140,848 $ 327,306 $ 96,268 $ (198,712) $ (140,168) $ 161,450 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,345 $ 1,408 $ 3,273 $ 963 $ (1,987) $ (1,402) $ 1,615 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 133,130 $ 139,440 $ 324,033 $ 95,305 $ (196,725) $ (138,766) $ 159,835 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 36.61 $ 38.35 $ 89.12 $ 26.21 $ (54.10) $ (38.16) $ 43.96 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 28.91 $ 38.90 $ 86.90 $ 28.92 $ 24.02 $ 50.67 $ 54.12 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 569,133 $ 533,958 $ 538,385 $ 532,243 $ 540,608 $ 832,047 $1,155,784 ========== ========== ========== ========== ========== ========== ==========
1139 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 88-B, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 88-B, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 88-B, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1140 PARKER & PARSLEY 88-B, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 8,954 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 10,116 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 3,023 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 341.24 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.53 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 152.74 -- as of December 31, 2000 (c) $ 145.00 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 318.50 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 331.19 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 145 (c), (f)
----------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2038, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1141 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, 2001 Commission File No. 33-19659-02 PARKER & PARSLEY 88-B, L.P. (Exact name of Registrant as specified in its charter) Delaware 75-2240121 ------------------------------------------ --------------------- (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 / / 1142 PARKER & PARSLEY 88-B, L.P. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000....................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000...................... 4 Statement of Partners' Capital for the six months ended June 30, 2001...................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................... 6 Notes to Financial Statements.............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K........................... 11 Signatures................................................. 12
2 1143 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 315,293 $ 144,763 Accounts receivable - oil and gas sales 138,533 198,467 ---------- ---------- Total current assets 453,826 343,230 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 6,772,191 6,954,545 Accumulated depletion (5,822,040) (5,969,972) ---------- ---------- Net oil and gas properties 950,151 984,573 ---------- ---------- $ 1,403,977 $ 1,327,803 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 22,604 $ 16,350 Partners' capital: Managing general partner 13,783 13,083 Limited partners (8,954 interests) 1,367,590 1,298,370 ---------- ---------- 1,381,373 1,311,453 ---------- ---------- $ 1,403,977 $ 1,327,803 ========== ==========
The financial information included as of June 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 1144 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 287,569 $ 302,734 $ 613,966 $ 591,346 Interest 2,193 3,085 4,914 5,177 Gain on disposition of assets 7,855 8,845 7,855 8,845 -------- -------- -------- -------- 297,617 314,664 626,735 605,368 -------- -------- -------- -------- Costs and expenses: Oil and gas production 128,587 114,842 233,029 205,053 General and administrative 7,189 8,802 15,349 17,740 Depletion 21,178 15,809 36,755 35,517 Abandoned property 10,241 - 10,241 - -------- -------- -------- -------- 167,195 139,453 295,374 258,310 -------- -------- -------- -------- Net income $ 130,422 $ 175,211 $ 331,361 $ 347,058 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,305 $ 1,753 $ 3,314 $ 3,471 ======== ======== ======== ======== Limited partners $ 129,117 $ 173,458 $ 328,047 $ 343,587 ======== ======== ======== ======== Net income per limited partnership interest $ 14.42 $ 19.37 $ 36.64 $ 38.37 ======== ======== ======== ========
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. 4 1145 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 13,083 $1,298,370 $1,311,453 Distributions (2,614) (258,827) (261,441) Net income 3,314 328,047 331,361 -------- --------- --------- Balance at June 30, 2001 $ 13,783 $1,367,590 $1,381,373 ======== ========= =========
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. 5 1146 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 331,361 $ 347,058 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 36,755 35,517 Gain on disposition of assets (7,855) (8,845) Changes in assets and liabilities: Accounts receivable 59,934 (10,351) Accounts payable 8,682 9,046 --------- --------- Net cash provided by operating activities 428,877 372,425 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (2,916) (5,439) Proceeds from asset dispositions 6,010 8,845 --------- --------- Net cash provided by investing activities 3,094 3,406 --------- --------- Cash flows used in financing activities: Cash distributions to partners (261,441) (351,856) --------- --------- Net increase in cash 170,530 23,975 Cash at beginning of period 144,763 129,430 --------- --------- Cash at end of period $ 315,293 $ 153,405 ========= =========
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 1147 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 88-B, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 4% to $613,966 for the six months ended June 30, 2001 as compared to $591,346 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 14,397 barrels 7 1148 of oil, 4,692 barrels of natural gas liquids ("NGLs") and 20,792 mcf of gas were sold, or 22,554 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 16,511 barrels of oil, 6,423 barrels of NGLs and 26,695 mcf of gas were sold, or 27,383 BOEs. The average price received per barrel of oil increased $1.33, or 5%, from $26.91 for the six months ended June 30, 2000 to $28.24 for the same period in 2001. The average price received per barrel of NGLs increased $3.39, or 24%, from $14.08 during the six months ended June 30, 2000 to $17.47 for the same period in 2001. The average price received per mcf of gas increased 184% from $2.12 during the six months ended June 30, 2000 to $6.03 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 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 six months ended June 30, 2001. Gain on disposition of assets of $7,855 was received during the six months ended June 30, 2001 due to the sale of equipment on one well plugged and abandoned during the current period. Abandoned property costs of $10,241 were also incurred during the same period to plug and abandon this well. A gain of $8,845 was recognized during the same period in 2000 resulting from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $295,374 for the six months ended June 30, 2001 as compared to $258,310 for the same period in 2000, an increase of $37,064, or 14%. This increase was due to increases in production costs, abandoned property costs and depletion, offset by a decline in general and administrative expenses ("G&A"). Production costs were $233,029 for the six months ended June 30, 2001 and $205,053 for the same period in 2000 resulting in a $27,976 increase, or 14%. This increase was primarily due to additional workover and well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 13% from $17,740 for the six months ended June 30, 2000 to $15,349 for the same period in 2001, primarily due to decreased audit and tax fees. Depletion was $36,755 for the six months ended June 30, 2001 as compared to $35,517 for the same period in 2000, an increase of $1,238, or 3%. This increase was primarily due to a reduction in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decrease in oil production of 2,114 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 8 1149 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $287,569 for the three months ended June 30, 2001 as compared to $302,734 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and a decline in production, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 7,644 barrels of oil, 2,377 barrels of NGLs and 12,161 mcf of gas were sold, or 12,048 BOEs. For the three months ended June 30, 2000, 8,275 barrels of oil, 3,156 barrels of NGLs and 12,676 mcf of gas were sold, or 13,544 BOEs. The average price received per barrel of oil decreased $.56, or 2%, from $27.42 for the three months ended June 30, 2000 to $26.86 for the same period in 2001. The average price received per barrel of NGLs increased $1.22, or 9%, from $13.81 during the three months ended June 30, 2000 to $15.03 for the same period in 2001. The average price received per mcf of gas increased 50% from $2.55 during the three months ended June 30, 2000 to $3.83 for the same period in 2001. Gain on disposition of assets of $7,855 was received during the three months ended June 30, 2001 due to the sale of equipment on one well plugged and abandoned during the current period. Abandoned property costs of $10,241 were also incurred during the same period to plug and abandon this well. A gain of $8,845 was recognized during the same period in 2000 resulting from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $167,195 for the three months ended June 30, 2001 as compared to $139,453 for the same period in 2000, an increase of $27,742, or 20%. This increase was due to increases in production costs, abandoned property costs and depletion, offset by a decline in G&A. Production costs were $128,587 for the three months ended June 30, 2001 and $114,842 for the same period in 2000 resulting in a $13,745 increase, or 12%. The increase was primarily due to additional workover and well maintenance costs incurred to stimulate well production. During this period, G&A decreased 18% from $8,802 for the three months ended June 30, 2000 to $7,189 for the same period in 2001 due to lower percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of a decline in oil and gas revenues and a decrease in audit and tax fees. Depletion was $21,178 for the three months ended June 30, 2001 as compared to $15,809 for the same period in 2000, an increase of $5,369, or 34%. This increase was primarily due to a reduction in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decline in oil production of 631 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 9 1150 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $56,452 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was primarily due to an increase of $22,357 in oil and gas sales receipts and reductions of $2,391 in G&A expenses and $69,921 in working capital, offset by increases in production costs of $27,976 and abandoned property costs of $10,241. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $147,904 to oil and gas receipts, offset by $125,547 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional workover and well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The decrease in G&A was primarily due to decreased audit and tax fees. Net Cash Provided by Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were for equipment upgrades on active oil and gas properties. Proceeds from disposition of assets of $6,010 was recognized during the six months ended June 30, 2001. The proceeds were comprised of $5,485 received from the sale of equipment on one well plugged and abandoned during the current period and $525 from equipment credits received on two active wells. Proceeds of $8,845 recognized during the same period in 2000 were from equipment credits on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $261,441, of which $2,614 was distributed to the managing general partner and $258,827 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $351,856, of which $3,519 was distributed to the managing general partner and $348,337 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge 10 1151 with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 1152 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) SIGNATURES 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 88-B, L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 8, 2001 By: /s/ Rich Dealy --------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1153 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-19659-02 PARKER & PARSLEY 88-B, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2240121 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $8,860,000. As of March 8, 2001, the number of outstanding limited partnership interests was 8,954. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1154 PART I ITEM 1. BUSINESS Parker & Parsley 88-B, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 8,954 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 50% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 1155 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located in the Spraberry Trend area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 43 oil and gas wells. Two wells have been plugged and abandoned. At December 31, 2000, 41 wells were producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1156 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 8,954 outstanding limited partnership interests held of record by 690 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $778,145 and $258,933, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Operating results: ------------------ Oil and gas sales $1,318,092 $ 717,449 $ 578,573 $ 810,500 $1,052,408 ========== ========== ========== ========== ========== Impairment of oil and gas properties $ - $ - $ 383,951 $ 547,793 $ - ========== ========== ========== ========== ========== Net income (loss) $ 805,539 $ 236,642 $ (488,631) $ (344,997) $ 397,674 ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 8,055 $ 2,366 $ (4,887) $ (3,450) $ 3,977 ========== ========== ========== ========== ========== Limited partners $ 797,484 $ 234,276 $ (483,744) $ (341,547) $ 393,697 ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 89.06 $ 26.16 $ (54.03) $ (38.14) $ 43.97 ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 86.90 $ 28.92 $ 24.02 $ 50.67 $ 54.14 ========== ========== ========== ========== ========== At year end: ------------ Identifiable assets $1,327,803 $1,313,164 $1,334,302 $2,051,284 $2,848,468 ========== ========== ========== ========== ==========
4 1157 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 84% to $1,318,092 for 2000 as compared to $717,449 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 32,524 barrels of oil, 13,205 barrels of natural gas liquids ("NGLs") and 53,620 mcf of gas were sold, or 54,666 barrel of oil equivalents ("BOEs"). In 1999, 28,078 barrels of oil, 13,752 NGLs and 57,190 mcf of gas were sold, or 51,362 BOEs. 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 increased $12.12, or 71%, from $17.17 in 1999 to $29.29 in 2000. The average price received per barrel of NGLs increased $5.99, or 60%, from $10.03 in 1999 to $16.02 in 2000. The average price received per mcf of gas increased 69% from $1.70 in 1999 to $2.87 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $17,697 was recognized during 2000. The gain was comprised of $14,729 received from the sale of equipment on one well plugged and abandoned during the current period and $2,968 from equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $542,703 as compared to $487,566 in 1999, an increase of $55,137, or 11%. The increase was due to increases in production costs, general and administrative expenses ("G&A") and abandoned property costs, offset by a decline in depletion. Production costs were $428,633 in 2000 and $361,482 in 1999, resulting in an increase of $67,151, or 19%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 83% from $21,650 in 1999 to $39,725 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $34,281 in 2000 and $13,039 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 1158 Depletion was $67,561 in 2000 as compared to $104,434 in 1999, representing a decrease of $36,873, or 35%. This decrease was primarily due to a 88,489 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices, offset by an increase in oil production of 4,446 barrels for the period ended December 31, 2000 compared to the same period in 1999. Abandoned property costs of $6,784 incurred in 2000 were related to the plugging and abandonment of one well during the current year. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 24% to $717,449 from $578,573 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 28,078 barrels of oil, 13,752 barrels of NGLs and 57,190 mcf of gas were sold, or 51,362 BOEs. In 1998, 31,155 barrels of oil, 12,210 NGLs and 52,254 mcf of gas were sold, or 52,074 BOEs. The average price received per barrel of oil increased $3.93, or 30%, from $13.24 in 1998 to $17.17 in 1999. The average price received per barrel of NGLs increased $3.12, or 45%, from $6.91 in 1998 to $10.03 in 1999. The average price received per mcf of gas increased 9% from $1.56 in 1998 to $1.70 in 1999. Total costs and expenses decreased in 1999 to $487,566 as compared to $1,075,163 in 1998, a decrease of $587,597, or 55%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $361,482 in 1999 and $390,835 in 1998, resulting in a $29,353 decrease, or 8%. The decrease was primarily due to declines in well maintenance costs, workover costs and ad valorem taxes, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 25% from $17,315 in 1998 to $21,650 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $13,039 in 1999 and $13,810 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $383,951 related to its oil and gas properties during 1998. Depletion was $104,434 in 1999 compared to $283,062 in 1998. This represented a decrease of $178,628, or 63%. This decrease was the result of a combination of factors that included an increase in proved reserves of 248,642 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 3,077 barrels for the period ended 6 1159 December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $512,129 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $606,337, offset by increases in production costs paid of $67,151, G&A expenses paid of $18,075, abandoned property costs paid of $6,784 and working capital of $2,198. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $495,153 to oil and gas receipts and an increase of $111,184 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities during 2000 and 1999 were related to the upgrades of oil and gas equipment on active properties. Proceeds from disposition of assets of $17,697 were recognized during 2000. The proceeds were comprised of $14,729 received from the sale of equipment on one well plugged and abandoned during the current period and $2,968 from equipment credits received on active wells. Proceeds of $10,758 recognized during 1999 were related to equipment disposals on one temporarily abandoned oil and gas well. Net Cash Used in Financing Activities 7 1160 In 2000, cash distributions to the partners were $786,005, of which $7,860 was distributed to the managing general partner and $778,145 to the limited partners. In 1999, cash distributions to the partners were $261,548, of which $2,615 was distributed to the managing general partner and $258,933 to the limited partners. 8 1161 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 88-B, L.P.: Independent Auditors' Report......................................................... 10 Balance Sheets as of December 31, 2000 and 1999...................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 14 Notes to Financial Statements........................................................ 15
9 1162 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 88-B, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 88-B, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 88-B, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 10 1163 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 144,763 $ 129,430 Accounts receivable - oil and gas sales 198,467 138,030 ----------- ----------- Total current assets 343,230 267,460 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 6,954,545 7,129,071 Accumulated depletion (5,969,972) (6,083,367) ----------- ----------- Net oil and gas properties 984,573 1,045,704 ----------- ----------- $ 1,327,803 $ 1,313,164 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 16,350 $ 21,245 Partners' capital: Managing general partner 13,083 12,888 Limited partners (8,954 interests) 1,298,370 1,279,031 ----------- ----------- 1,311,453 1,291,919 ----------- ----------- $ 1,327,803 $ 1,313,164 =========== ===========
The accompanying notes are an integral part of these financial statements. 11 1164 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ---------- ---------- ----------- Revenues: Oil and gas $1,318,092 $ 717,449 $ 578,573 Interest 12,453 6,759 7,803 Other - - 156 Gain on disposition of assets 17,697 - - ---------- ---------- ----------- 1,348,242 724,208 586,532 ---------- ---------- ----------- Costs and expenses: Oil and gas production 428,633 361,482 390,835 General and administrative 39,725 21,650 17,315 Impairment of oil and gas properties - - 383,951 Depletion 67,561 104,434 283,062 Abandoned property 6,784 - - ---------- ---------- ----------- 542,703 487,566 1,075,163 ---------- ---------- ----------- Net income (loss) $ 805,539 $ 236,642 $ (488,631) ========== ========== =========== Allocation of net income (loss): Managing general partner $ 8,055 $ 2,366 $ (4,887) ========== ========== =========== Limited partners $ 797,484 $ 234,276 $ (483,744) ========== ========== =========== Net income (loss) per limited partnership interest $ 89.06 $ 26.16 $ (54.03) ========== ========== ===========
The accompanying notes are an integral part of these financial statements. 12 1165 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- ----------- ----------- Partners' capital at January 1, 1998 $ 20,196 $ 2,002,489 $ 2,022,685 Distributions (2,172) (215,057) (217,229) Net loss (4,887) (483,744) (488,631) -------- ----------- ----------- Partners' capital at December 31, 1998 13,137 1,303,688 1,316,825 Distributions (2,615) (258,933) (261,548) Net income 2,366 234,276 236,642 -------- ----------- ----------- Partners' capital at December 31, 1999 12,888 1,279,031 1,291,919 Distributions (7,860) (778,145) (786,005) Net income 8,055 797,484 805,539 -------- ----------- ----------- Partners' capital at December 31, 2000 $ 13,083 $ 1,298,370 $ 1,311,453 ======== =========== ===========
The accompanying notes are an integral part of these financial statements. 13 1166 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 805,539 $ 236,642 $(488,631) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 383,951 Depletion 67,561 104,434 283,062 Other - - (156) Gain on disposition of assets (17,697) - - Changes in assets and liabilities: Accounts receivable (60,437) (66,902) 26,411 Accounts payable (4,895) 3,768 (11,122) --------- --------- --------- Net cash provided by operating activities 790,071 277,942 193,515 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (6,430) (8,363) (15,067) Proceeds from asset dispositions 17,697 10,758 156 --------- --------- --------- Net cash provided by (used in) investing activities 11,267 2,395 (14,911) --------- --------- --------- Cash flows from financing activities: Cash distributions to partners (786,005) (261,548) (217,229) --------- --------- --------- Net increase (decrease) in cash 15,333 18,789 (38,625) Cash at beginning of year 129,430 110,641 149,266 --------- --------- --------- Cash at end of year $ 144,763 $ 129,430 $ 110,641 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 14 1167 PARKER & PARSLEY 88-B, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 88-B, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the 15 1168 respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $383,951 related to its proved oil and gas properties during 1998. 16 1169 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $77,883 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- -------- --------- Net income (loss) per statements of operations $ 805,539 $236,642 $(488,631) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 58,194 94,173 274,063 Impairment of oil and gas properties for financial reporting purposes - - 383,951 Other (2,494) 8,701 1,161 --------- -------- --------- Net income per Federal income tax returns $ 861,239 $339,516 $ 170,544 ========= ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- -------- -------- Development costs $ 6,430 $ 8,363 $ 15,067 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 426,682 $ 439,249 Completed wells and equipment 6,527,863 6,689,822 ----------- ----------- 6,954,545 7,129,071 Accumulated depletion (5,969,972) (6,083,367) ----------- ----------- Net oil and gas properties $ 984,573 $ 1,045,704 =========== ===========
17 1170 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $159,314 $157,042 $150,985 Reimbursement of general and administrative expenses $ 34,281 $ 13,039 $ 13,810
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, Parker & Parsley 88-B Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 94 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 88-B Conv., L.P. is 71.119936% and 28.880064%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 18 1171
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 528,956 612,323 Revisions (215,651) (183,598) Production (43,365) (52,254) ---------- ---------- Net proved reserves at December 31, 1998 269,940 376,471 Revisions 375,777 553,985 Production (41,830) (57,190) ---------- ---------- Net proved reserves at December 31, 1999 603,887 873,266 Revisions 114,704 59,721 Production (45,729) (53,620) ---------- ---------- Net proved reserves at December 31, 2000 672,862 879,367 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.59 per barrel of NGLs and $7.85 per mcf of gas, discounted at 10% was approximately $5,167,000 and undiscounted was $10,831,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ----------------------------------- 2000 1999 1998 -------- -------- ------- (in thousands) Oil and gas producing activities: Future cash inflows $ 22,071 $ 15,072 $ 2,957 Future production costs (11,240) (8,674) (2,289) -------- -------- ------- 10,831 6,398 668 10% annual discount factor (5,664) (3,054) (210) -------- -------- ------- Standardized measure of discounted future net cash flows $ 5,167 $ 3,344 $ 458 ======== ======== =======
19 1172
For the years ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (889) $ (356) $ (188) Net changes in prices and production costs 1,910 1,466 (1,276) Revisions of previous quantity estimates 862 2,739 (280) Accretion of discount 334 46 207 Changes in production rates, timing and other (394) (1,009) (77) ------- ------- ------- Change in present value of future net revenues 1,823 2,886 (1,614) ------- ------- ------- Balance, beginning of year 3,344 458 2,072 ------- ------- ------- Balance, end of year $ 5,167 $ 3,344 $ 458 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 50% 44% - Genesis Crude Oil, L.P. - - 49% Western Gas Resources, Inc. 3% 5% 17%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $62,153 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. 20 1173 Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $8,954,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 1174 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 22 1175 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 23 1176 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 25% of its operating and general and administrative expenses. In return, Pioneer USA is allocated approximately 25% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 94 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 24 1177
2000 1999 1998 -------- --------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreement $159,314 $ 157,042 $150,985 Reimbursement of general and administrative expenses $ 34,281 $ 13,039 $ 13,810
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 25 1178 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 26 1179 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 88-B, L.P. Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield -------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 29, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 29, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 29, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 29, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
27 1180 PARKER & PARSLEY 88-B, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Amended and Restated Certificate and - Agreement of Limited Partnership of Parker & Parsley 88-B, L.P. incorporated by reference to Exhibit A of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-19659) 4(b) Form of Subscription Agreement and - Power of Attorney incorporated by reference to Exhibit D of the Partnership's Registration Statement on Form S-1 (Registration No. 33-19659) (hereinafter called the Partnership's Registration Statement) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit D of the Partnership's Registration Statement 10(b) Exploration and Development Program - Agreement incorporated by reference to Exhibit C of the Partnership's Registration Statement
28 1181 PARKER & PARSLEY 88-B, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, --------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 -------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 613,966 $ 591,346 $1,318,092 $ 717,449 $ 578,573 $ 810,500 $1,052,408 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 383,951 $ 547,793 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 331,361 $ 347,058 $ 805,539 $ 236,642 $ (488,631) $ (344,997) $ 397,674 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,314 $ 3,471 $ 8,055 $ 2,366 $ (4,887) $ (3,450) $ 3,977 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 328,047 $ 343,587 $ 797,484 $ 234,276 $ (483,744) $ (341,547) $ 393,697 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 36.64 $ 38.37 $ 89.06 $ 26.16 $ (54.03) $ (38.14) $ 43.97 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 28.91 $ 38.90 $ 86.90 $ 28.92 $ 24.02 $ 50.67 $ 54.14 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,403,977 $1,317,412 $1,327,803 $1,313,164 $1,334,302 $2,051,284 $2,848,468 ========== ========== ========== ========== ========== ========== ==========
1182 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 88-C CONV., L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 88-C Conv., L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 88-C Conv., L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1183 PARKER & PARSLEY 88-C CONV., L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 3,411 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 3,591 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 996 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 292.92 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.52 times the past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 150.70 -- as of December 31, 2000(c) $ 142.82 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 273.28 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 284.32 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 149
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as any value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2038, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1184 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1185 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 110,984 $ 51,156 Accounts receivable - oil and gas sales 51,595 66,963 ---------- ---------- Total current assets 162,579 118,119 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,399,899 2,458,118 Accumulated depletion (2,032,952) (2,078,258) ---------- ---------- Net oil and gas properties 366,947 379,860 ---------- ---------- $ 529,526 $ 497,979 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 10,309 $ 5,927 Partners' capital: Managing general partner 5,177 4,905 Limited partners (3,411 interests) 514,040 487,147 ---------- ---------- 519,217 492,052 ---------- ---------- $ 529,526 $ 497,979 ========== ==========
The financial information included herein as of June 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. 2 1186 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 102,918 $ 103,726 $ 215,104 $ 198,755 Interest 789 1,027 1,734 1,783 Gain on disposition of assets 2,508 2,824 2,508 2,824 -------- -------- -------- -------- 106,215 107,577 219,346 203,362 -------- -------- -------- -------- Costs and expenses: Oil and gas production 47,040 39,337 82,788 73,398 General and administrative 2,912 3,112 6,678 5,963 Depletion 7,817 6,008 13,659 12,975 Abandoned property 3,230 - 3,230 - -------- -------- -------- -------- 60,999 48,457 106,355 92,336 -------- -------- -------- -------- Net income $ 45,216 $ 59,120 $ 112,991 $ 111,026 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 452 $ 591 $ 1,130 $ 1,110 ======== ======== ======== ======== Limited partners $ 44,764 $ 58,529 $ 111,861 $ 109,916 ======== ======== ======== ======== Net income per limited partnership interest $ 13.12 $ 17.15 $ 32.79 $ 32.22 ======== ======== ======== ========
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. 3 1187 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 4,905 $ 487,147 $ 492,052 Distributions (858) (84,968) (85,826) Net income 1,130 111,861 112,991 -------- --------- --------- Balance at June 30, 2001 $ 5,177 $ 514,040 $ 519,217 ======== ========= =========
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. 4 1188 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 112,991 $ 111,026 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 13,659 12,975 Gain on disposition of assets (2,508) (2,824) Changes in assets and liabilities: Accounts receivable 15,368 (11,879) Accounts payable 5,157 2,361 -------- -------- Net cash provided by operating activities 144,667 111,659 -------- -------- Cash flows from investing activities: Additions to oil and gas properties (931) (1,751) Proceeds from asset dispositions 1,918 2,824 -------- -------- Net cash provided by investing activities 987 1,073 -------- -------- Cash flows used in financing activities: Cash distributions to partners (85,826) (119,650) -------- -------- Net increase (decrease) in cash 59,828 (6,918) Cash at beginning of period 51,156 56,353 -------- -------- Cash at end of period $ 110,984 $ 49,435 ======== ========
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. 5 1189 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 88-C Conv., L.P. (the "Partnership") was organized in 1988 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1989. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 8% to $215,104 for the six months ended June 30, 2001 as compared to $198,755 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by 6 1190 a decline in production. For the six months ended June 30, 2001, 4,777 barrels of oil, 1,958 barrels of natural gas liquids ("NGLs") and 8,160 mcf of gas were sold, or 8,095 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 5,355 barrels of oil, 2,398 barrels of NGLs and 9,952 mcf of gas were sold, or 9,412 BOEs. The average price received per barrel of oil increased $1.44, or 5%, from $26.96 for the six months ended June 30, 2000 to $28.40 for the same period in 2001. The average price received per barrel of NGLs increased $3.13, or 22%, from $13.94 during the six months ended June 30, 2000 to $17.07 for the same period in 2001. The average price received per mcf of gas increased 169% from $2.10 during the six months ended June 30, 2000 to $5.64 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 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 six months ended June 30, 2001. Gains on disposition of assets of $2,508 and $2,824 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during the period ended June 30, 2001 was due to salvage income received on one well plugged and abandoned during the current period. The gain recognized during the period ended June 30, 2000 resulted from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $106,355 for the six months ended June 30, 2001 as compared to $92,336 for the same period in 2000, an increase of $14,019, or 15%. The increase was due to increases in production costs, general and administrative expenses ("G&A"), depletion and abandoned property costs. Production costs were $82,788 for the six months ended June 30, 2001 and $73,398 for the same period in 2000 resulting in a $9,390 increase, or 13%. The increase was due to additional workover and well maintenance costs incurred to stimulate well production and increased production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel costs. During this period, G&A increased 12%, from $5,963 for the six months ended June 30, 2000 to $6,678 for the same period in 2001, primarily due to increased audit and tax fees. Depletion was $13,659 for the six months ended June 30, 2001 as compared to $12,975 for the same period in 2000, an increase of $684, or 5%. This increase was due to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 578 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Abandoned property costs of $3,230 were incurred for the six months ended June 30, 2001 to plug and abandon one well. 7 1191 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased slightly to $102,918 for the three months ended June 30, 2001 as compared to $103,726 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 2,619 barrels of oil, 1,005 barrels of NGLs and 4,630 mcf of gas were sold, or 4,396 BOEs. For the three months ended June 30, 2000, 2,662 barrels of oil, 1,276 barrels of NGLs and 5,183 mcf of gas were sold, or 4,802 BOEs. The average price received per barrel of oil decreased $.58, or 2%, from $27.57 for the three months ended June 30, 2000 to $26.99 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.16, or 8%, from $13.67 during the three months ended June 30, 2000 to $14.83 for the same period in 2001. The average price received per mcf of gas increased 51% to $3.74 during the three months ended June 30, 2001 from $2.47 during the same period in 2000. Gains on disposition of assets of $2,508 and $2,824 were recognized during the three months ended June 30, 2001 and 2000, respectively. The gain recognized during the period ended June 30, 2001 was due to salvage income received on one well plugged and abandoned during the current period. The gain recognized during the period ended June 30, 2000 resulted from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $60,999 for the three months ended June 30, 2001 as compared to $48,457 for the same period in 2000, an increase of $12,542, or 26%. This increase was due to increases in production costs, depletion and abandoned property costs, offset by a decline in G&A. Production costs were $47,040 for the three months ended June 30, 2001 and $39,337 for the same period in 2000, resulting in a $7,703 increase, or 20%. The increase was due to additional workover and well maintenance costs incurred to stimulate well production. During this period, G&A decreased 6%, from $3,112 for the three months ended June 30, 2000 to $2,912 for the same period in 2001, primarily due to a decline in audit and tax fees. Depletion was $7,817 for the three months ended June 30, 2001 as compared to $6,008 for the same period in 2000, an increase of $1,809, or 30%. This increase was attributable to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 43 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 8 1192 Abandoned property costs of $3,230 were incurred for the three months ended June 30, 2001 to plug and abandon one well. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $33,008 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $16,300 and a reduction in working capital of $30,043, offset by increases in production costs of $9,390, G&A expenses of $715 and abandoned property costs of $3,230. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $50,373 to oil and gas receipts, offset by $34,073 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional workover and well maintenance costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to increased audit and tax fees. Net Cash Provided by Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on various oil and gas properties. Proceeds of $1,918 and $2,824 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during the period ended June 30, 2001 was due to salvage income received on one well plugged and abandoned during the current period. The gain recognized during the period ended June 30, 2000 resulted from equipment credits received on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $85,826, of which $858 was distributed to the managing general partner and $84,968 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $119,650, of which $1,197 was distributed to the managing general partner and $118,453 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 9 1193 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1194 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1195 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 88-C Conv., L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 88-C Conv., L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 88-C Conv., L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1196 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 51,156 $ 56,353 Accounts receivable - oil and gas sales 66,963 40,622 ----------- ----------- Total current assets 118,119 96,975 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,458,118 2,513,824 Accumulated depletion (2,078,258) (2,110,906) ----------- ----------- Net oil and gas properties 379,860 402,918 ----------- ----------- $ 497,979 $ 499,893 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 5,927 $ 8,955 Partners' capital: Managing general partner 4,905 4,894 Limited partners (3,411 interests) 487,147 486,044 ----------- ----------- 492,052 490,938 ----------- ----------- $ 497,979 $ 499,893 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1197 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 443,642 $ 246,242 200,460 Interest 4,268 2,112 2,970 Gain on disposition of assets 5,650 - 2,175 --------- --------- --------- 453,560 248,354 205,605 --------- --------- --------- Costs and expenses: Oil and gas production 151,650 131,165 142,438 General and administrative 13,129 7,217 5,997 Impairment of oil and gas properties - - 119,715 Depletion 25,125 40,513 97,851 Abandoned property 2,166 - - --------- --------- --------- 192,070 178,895 366,001 --------- --------- --------- Net income (loss) $ 261,490 $ 69,459 $(160,396) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 2,615 $ 695 $ (1,604) ========= ========= ========= Limited partners $ 258,875 $ 68,764 $(158,792) ========= ========= ========= Net income (loss) per limited partnership interest $ 75.89 $ 20.16 $ (46.55) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 1198 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- --------- --------- Partners' capital at January 1, 1998 $ 7,326 $ 726,841 $ 734,167 Distributions (777) (76,894) (77,671) Net loss (1,604) (158,792) (160,396) --------- --------- --------- Partners' capital at December 31, 1998 4,945 491,155 496,100 Distributions (746) (73,875) (74,621) Net income 695 68,764 69,459 --------- --------- --------- Partners' capital at December 31, 1999 4,894 486,044 490,938 Distributions (2,604) (257,772) (260,376) Net income 2,615 258,875 261,490 --------- --------- --------- Partners' capital at December 31, 2000 $ 4,905 $ 487,147 $ 492,052 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 5 1199 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 261,490 $ 69,459 $(160,396) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 119,715 Depletion 25,125 40,513 97,851 Gain on disposition of assets (5,650) - (2,175) Changes in assets and liabilities: Accounts receivable (26,341) (16,186) 10,141 Accounts payable (3,028) 2,588 (7,979) --------- --------- --------- Net cash provided by operating activities 251,596 96,374 57,157 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (2,067) (3,851) (5,337) Proceeds from disposition of assets 5,650 3,435 2,175 --------- --------- --------- Net cash provided by (used in) investing activities 3,583 (416) (3,162) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (260,376) (74,621) (77,671) --------- --------- --------- Net increase (decrease) in cash (5,197) 21,337 (23,676) Cash at beginning of year 56,353 35,016 58,692 --------- --------- --------- Cash at end of year $ 51,156 $ 56,353 $ 35,016 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1200 PARKER & PARSLEY 88-C CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 88-C Conv., L.P. (the "Partnership") was organized in 1988 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1989. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1201 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non- partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $119,715 related to its proved oil and gas properties during 1998. 8 1202 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $35,215 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 261,490 $ 69,459 $(160,396) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 21,929 37,157 94,995 Impairment of oil and gas properties for financial reporting purposes - - 119,715 Other, net (822) 3,106 (4,638) --------- --------- --------- Net income per Federal income tax returns $ 282,597 $ 109,722 $ 49,676 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ---------- ----------- ---------- Development costs $ 2,067 $ 3,851 $ 5,337 ========== =========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 124,434 $ 128,446 Completed wells and equipment 2,333,684 2,385,378 ----------- ----------- 2,458,118 2,513,824 Accumulated depletion (2,078,258) (2,110,906) ----------- ----------- Net oil and gas properties $ 379,860 $ 402,918 =========== ===========
9 1203 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 58,509 $ 56,225 $ 54,996 Reimbursement of general and administrative expenses $ 9,514 $ 1,096 $ 2,651
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, Parker & Parsley 88-C, L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and ten limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 88-C, L.P. is 58.387538% and 41.612462%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1204
Oil and NGLs Gas (bbls) (mcf) ------------ --------- Net proved reserves at January 1, 1998 181,762 227,096 Revisions (75,078) (70,056) Production (14,859) (19,764) --------- --------- Net proved reserves at December 31, 1998 91,825 137,276 Revisions 124,253 193,483 Production (14,136) (21,119) --------- --------- Net proved reserves at December 31, 1999 201,942 309,640 Revisions 35,970 23,002 Production (15,453) (19,618) --------- --------- Net proved reserves at December 31, 2000 222,459 313,024 ========= =========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.56 per barrel of NGLs and $7.78 per mcf of gas, discounted at 10% was approximately $1,724,000 and undiscounted was approximately $3,597,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ---------------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 7,379 $ 5,029 $ 1,007 Future production costs (3,782) (2,920) (784) -------- -------- -------- 3,597 2,109 223 10% annual discount factor (1,873) (998) (69) -------- -------- -------- Standardized measure of discounted future net cash flows $ 1,724 $ 1,111 $ 154 ======== ======== ========
11 1205
For the years ended December 31, -------------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (292) $ (115) $ (58) Net changes in prices and production costs 661 496 (461) Revisions of previous quantity estimates 275 900 (94) Accretion of discount 111 15 72 Changes in production rates, timing and other (142) (339) (26) ------- ------- ------- Change in present value of future net revenues 613 957 (567) ------- ------- ------- Balance, beginning of year 1,111 154 721 ------- ------- ------- Balance, end of year $ 1,724 $ 1,111 $ 154 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 52% 46% - Genesis Crude Oil, L.P. - - 51% Western Gas Resources, Inc. 4% 6% 21%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $21,565 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's 12 1206 revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $3,411,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1207 PARKER & PARSLEY 88-C CONV., L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 80% to $443,642 for 2000 as compared to $246,242 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 10,646 barrels of oil, 4,807 barrels of natural gas liquids ("NGLs") and 19,618 mcf of gas were sold, or 18,723 barrel of oil equivalents ("BOEs"). In 1999, 9,260 barrels of oil, 4,876 barrels of NGLs and 21,119 mcf of gas were sold, or 17,656 BOEs. 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 increased $12.09, or 70%, from $17.24 in 1999 to $29.33 in 2000. The average price received per barrel of NGLs increased $5.41, or 52%, from $10.42 in 1999 to $15.83 in 2000. The average price received per mcf of gas increased 66% from $1.70 in 1999 to $2.82 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $5,650 recognized in 2000 was due to equipment credits received from salvage income of $4,703 on one well plugged and abandoned during the current year and $947 on one fully depleted well. Total costs and expenses increased in 2000 to $192,070 as compared to $178,895 in 1999, an increase of $13,175, or 7%. The increase was primarily due to increases in production costs, general and administrative expenses ("G&A") and abandoned property costs, offset by a decline in depletion. Production costs were $151,650 in 2000 and $131,165 in 1999, resulting in a $20,485 increase, or 16%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. Abandoned property costs of $2,166 during 2000 were related to the plugging and abandonment of one well during the current year. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 82% from $7,217 in 1999 to $13,129 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $9,514 in 2000 and $1,096 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $25,125 in 2000 as compared to $40,513 in 1999, representing a decrease of $15,388, or 38%. This decrease was primarily due to a 26,409 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices, offset by an increase in oil production of 1,386 barrels for the period ended December 31, 2000 compared to the same period in 1999. 1208 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 23% to $246,242 from $200,460 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 9,260 barrels of oil, 4,876 barrels of NGLs and 21,119 mcf of gas were sold, or 17,656 BOEs. In 1998, 10,457 barrels of oil, 4,402 barrels of NGLs and 19,764 mcf of gas were sold, or 18,153 BOEs. The average price received per barrel of oil increased $3.94, or 30%, from $13.30 in 1998 to $17.24 in 1999. The average price received per barrel of NGLs increased $3.48, or 50%, from $6.94 in 1998 to $10.42 in 1999. The average price received per mcf of gas increased 10% from $1.55 in 1998 to $1.70 in 1999. A gain on disposition of assets of $2,175 was recognized during 1998 from equipment credits on a well plugged and abandoned in 1997. Total costs and expenses decreased in 1999 to $178,895 as compared to $366,001 in 1998, a decrease of $187,106, or 51%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $131,165 in 1999 and $142,438 in 1998, resulting in an $11,273 decrease, or 8%. The decrease was due to declines in well maintenance costs, workover expenses and ad valorem taxes, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 20% from $5,997 in 1998 to $7,217 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $1,096 in 1999 and $2,651 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $119,715 related to its oil and gas properties during 1998. Depletion was $40,513 in 1999 compared to $97,851 in 1998, representing a decrease of $57,338, or 59%. This decrease was the result of a combination of factors that included an increase in proved reserves of 79,930 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 1,197 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1209 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $155,222 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $199,556, offset by increases in production costs paid of $20,485, G&A expenses paid of $5,912, abandoned property costs paid of $2,166 and working capital of $15,771. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $164,214 to oil and gas receipts and an increase of $35,342 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Proceeds from disposition of assets of $5,650 recognized in 2000 was due to equipment credits received from salvage income of $4,703 on one well plugged and abandoned during the current year and $947 on one fully depleted well. Proceeds from disposition of assets of $3,435 during 1999 were received from equipment credits on active wells. Net Cash Used in Financing Activities For 2000, cash distributions to the partners were $260,376, of which $2,604 was distributed to the managing general partner and $257,772 to the limited partners. In 1999, cash distributions to the partners were $74,621, of which $746 was distributed to the managing general partner and $73,875 to the limited partners. 1210 PARKER & PARSLEY 88-C CONV., L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ---------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 --------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 215,104 $ 198,755 $ 443,642 $ 246,242 $ 200,460 $ 284,284 $ 372,187 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 119,715 $ 137,839 $ 4,494 ========= ========== ========== ========== ========== ========== ========== Net income (loss) $ 112,991 $ 111,026 $ 261,490 $ 69,459 $ (160,396) $ (84,748) $ 128,417 ========= ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,130 $ 1,110 $ 2,615 $ 695 $ (1,604) $ (847) $ 1,284 ========= ========== ========== ========== ========== ========== ========== Limited partners $ 111,861 $ 109,916 $ 258,875 $ 68,764 $ (158,792) $ (83,901) $ 127,133 ========= ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 32.79 $ 32.22 $ 75.89 $ 20.16 $ (46.55) $ (24.60) $ 37.27 ========= ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 24.91 $ 34.73 $ 75.57 $ 21.66 $ 22.54 $ 44.49 $ 47.64 ========= ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 529,526 $ 493,630 $ 497,979 $ 499,893 $ 502,467 $ 748,513 $ 982,497 ========= ========== ========== ========== ========== ========== ==========
1211 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 88-C, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 88-C, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 88-C, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1212 PARKER & PARSLEY 88-C, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 2,431 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 2,558 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 706 USA(a),(b) Merger Value per $1,000 Limited Partner Investment(b), (c) $ 291.04 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.50 times past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 148.52 -- as of December 31, 2000(c) $ 140.76 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 271.40 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 282.45 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), $ 149 (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2038, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1213 PARKER & PARSLEY 88-C , L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1214 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 74,126 $ 31,689 Accounts receivable - oil and gas sales 36,776 47,902 ---------- ---------- Total current assets 110,902 79,591 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 1,710,394 1,751,887 Accumulated depletion (1,449,252) (1,481,594) ---------- ---------- Net oil and gas properties 261,142 270,293 ---------- ---------- $ 372,044 $ 349,884 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 7,371 $ 4,246 Partners' capital: Managing general partner 3,633 3,443 Limited partners (2,431 interests) 361,040 342,195 ---------- ---------- 364,673 345,638 ---------- ---------- $ 372,044 $ 349,884 ========== ==========
The financial information included as of June 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. 2 1215 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 73,295 $ 73,472 $ 153,108 $ 141,499 Interest 514 677 1,033 1,174 Gain on disposition of assets 1,788 2,013 1,788 2,013 -------- -------- -------- -------- 75,597 76,162 155,929 144,686 -------- -------- -------- -------- Costs and expenses: Oil and gas production 33,489 28,016 58,961 52,306 General and administrative 2,359 2,204 4,753 4,245 Depletion 5,534 4,268 9,682 9,251 Abandoned property 2,330 - 2,330 - -------- -------- -------- -------- 43,712 34,488 75,726 65,802 -------- -------- -------- -------- Net income $ 31,885 $ 41,674 $ 80,203 $ 78,884 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 319 $ 417 $ 802 $ 789 ======== ======== ======== ======== Limited partners $ 31,566 $ 41,257 $ 79,401 $ 78,095 ======== ======== ======== ======== Net income per limited partnership interest $ 12.98 $ 16.97 $ 32.66 $ 32.12 ======== ======== ======== ========
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. 3 1216 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 3,443 $ 342,195 $ 345,638 Distributions (612) (60,556) (61,168) Net income 802 79,401 80,203 -------- --------- --------- Balance at June 30, 2001 $ 3,633 $ 361,040 $ 364,673 ======== ========= =========
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. 4 1217 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 80,203 $ 78,884 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 9,682 9,251 Gain on disposition of assets (1,788) (2,013) Changes in assets and liabilities: Accounts receivable 11,126 (8,319) Accounts payable 3,678 1,630 -------- -------- Net cash provided by operating activities 102,901 79,433 -------- -------- Cash flows from investing activities: Additions to oil and gas properties (663) (1,248) Proceeds from asset dispositions 1,367 2,013 -------- -------- Net cash provided by investing activities 704 765 -------- -------- Cash flows used in financing activities: Cash distributions to partners (61,168) (85,274) -------- -------- Net increase (decrease) in cash 42,437 (5,076) Cash at beginning of period 31,689 35,943 -------- -------- Cash at end of period $ 74,126 $ 30,867 ======== ========
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. 5 1218 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 88-C, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 8% to $153,108 for the six months ended June 30, 2001 as compared to $141,499 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decline in production. For the six months ended June 30, 2001, 3,403 barrels 6 1219 of oil, 1,389 barrels of natural gas liquids ("NGLs") and 5,811 mcf of gas were sold, or 5,761 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 3,814 barrels of oil, 1,706 barrels of NGLs and 7,086 mcf of gas were sold, or 6,701 BOEs. The average price received per barrel of oil increased $1.44, or 5%, from $26.96 for the six months ended June 30, 2000 to $28.40 for the same period in 2001. The average price received per barrel of NGLs increased $3.13, or 22%, from $13.94 during the six months ended June 30, 2000 to $17.07 for the same period in 2001. The average price received per mcf of gas increased 169% from $2.10 during the six months ended June 30, 2000 to $5.64 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 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 six months ended June 30, 2001. Gains on disposition of assets of $1,788 and $2,013 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during the period ended June 30, 2001 was due to salvage income received on one well plugged and abandoned during the current period. The gain recognized during the period ended June 30, 2000 was due to equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $75,726 for the six months ended June 30, 2001 as compared to $65,802 for the same period in 2000, an increase of $9,924, or 15%. This increase was due to increases in production costs, general and administrative expenses ("G&A"), depletion and abandoned property costs. Production costs were $58,961 for the six months ended June 30, 2001 and $52,306 for the same period in 2000 resulting in a $6,655 increase, or 13%. The increase was due to additional workover and well maintenance costs incurred to stimulate well production and increased production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 12%, from $4,245 for the six months ended June 30, 2000 to $4,753 for the same period in 2001, primarily due to increased audit and tax fees. Depletion was $9,682 for the six months ended June 30, 2001 as compared to $9,251 for the same period in 2000, an increase of $431, or 5%. This increase was due to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 411 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Abandoned property costs of $2,330 were incurred for the six months ended June 30, 2001 to plug and abandon one well. 7 1220 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased slightly to $73,295 for the three months ended June 30, 2001 as compared to $73,472 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 1,866 barrels of oil, 716 barrels of NGLs and 3,294 mcf of gas were sold, or 3,131 BOEs. For the three months ended June 30, 2000, 1,884 barrels of oil, 907 barrels of NGLs and 3,694 mcf of gas were sold, or 3,407 BOEs. The average price received per barrel of oil decreased $.58, or 2%, from $27.57 for the three months ended June 30, 2000 to $26.99 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.16, or 8%, from $13.67 during the three months ended June 30, 2000 to $14.83 for the same period in 2001. The average price received per mcf of gas increased 51% to $3.74 during the three months ended June 30, 2001 from $2.47 during the same period in 2000. Gains on disposition of assets of $1,788 and $2,013 were recognized during the three months ended June 30, 2001 and 2000, respectively. The gain recognized during the period ended June 30, 2001 was due to salvage income received on one well plugged and abandoned during the current period. The gain recognized during the period ended June 30, 2000 was due to equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $43,712 for the three months ended June 30, 2001 as compared to $34,488 for the same period in 2000, an increase of $9,224, or 27%. This increase was due to increases in production costs, G&A, depletion and abandoned property costs. Production costs were $33,489 for the three months ended June 30, 2001 and $28,016 for the same period in 2000, resulting in a $5,473 increase, or 20%. The increase was due to additional workover and well maintenance costs incurred to stimulate well production. During this period, G&A increased 7%, from $2,204 for the three months ended June 30, 2000 to $2,359 for the same period in 2001, primarily due to increased audit and tax fees. Depletion was $5,534 for the three months ended June 30, 2001 as compared to $4,268 for the same period in 2000, an increase of $1,266, or 30%. This increase was attributable to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 18 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 8 1221 Abandoned property costs of $2,330 were incurred for the three months ended June 30, 2001 to plug and abandon one well. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $23,468 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $11,468 and a reduction in working capital of $21,493, offset by increases in production costs of $6,655, G&A expenses of $508 and abandoned property costs of $2,330. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $35,738 to oil and gas receipts, offset by $24,270 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional workover and well maintenance costs incurred to stimulate well production and increased production taxes due to higher oil and gas prices. The increase in G&A was primarily due to increased audit and tax fees. Net Cash Provided by Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on various oil and gas properties. Proceeds from asset dispositions of $1,367 and $2,013 were recognized during the six months ended June 30, 2001 and 2000, respectively. The proceeds recognized during 2001 were due to salvage income received on a well plugged and abandoned during the current year. The proceeds recognized during 2000 were due to equipment credits received on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $61,168, of which $612 was distributed to the managing general partner and $60,556 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $85,274, of which $853 was distributed to the managing general partner and $84,421 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the 9 1222 agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1223 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1224 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 88-C, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 88-C, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 88-C, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1225 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS Current assets: Cash $ 31,689 $ 35,943 Accounts receivable - oil and gas sales 47,902 28,942 ----------- ----------- Total current assets 79,591 64,885 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 1,751,887 1,791,588 Accumulated depletion (1,481,594) (1,504,855) ----------- ----------- Net oil and gas properties 270,293 286,733 ----------- ----------- $ 349,884 $ 351,618 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 4,246 $ 6,404 Partners' capital: Managing general partner 3,443 3,439 Limited partners (2,431 interests) 342,195 341,775 ----------- ----------- 345,638 345,214 ----------- ----------- $ 349,884 $ 351,618 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1226 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 316,382 $ 175,483 142,874 Interest 2,805 1,335 1,945 Gain on disposition of assets 4,027 -- 1,550 --------- --------- --------- 323,214 176,818 146,369 --------- --------- --------- Costs and expenses: Oil and gas production 108,093 93,481 101,514 General and administrative 9,672 5,434 4,303 Impairment of oil and gas properties -- -- 85,160 Depletion 17,913 28,843 69,935 Abandoned property 1,544 -- -- --------- --------- --------- 137,222 127,758 260,912 --------- --------- --------- Net income (loss) $ 185,992 $ 49,060 $(114,543) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 1,860 $ 491 $ (1,145) ========= ========= ========= Limited partners $ 184,132 $ 48,569 $(113,398) ========= ========= ========= Net income (loss) per limited partnership interest $ 75.74 $ 19.98 $ (46.65) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 1227 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- --------- --------- Partners' capital at January 1, 1998 $ 5,179 $ 514,055 $ 519,234 Distributions (554) (54,801) (55,355) Net loss (1,145) (113,398) (114,543) --------- --------- --------- Partners' capital at December 31, 1998 3,480 345,856 349,336 Distributions (532) (52,650) (53,182) Net income 491 48,569 49,060 --------- --------- --------- Partners' capital at December 31, 1999 3,439 341,775 345,214 Distributions (1,856) (183,712) (185,568) Net income 1,860 184,132 185,992 --------- --------- --------- Partners' capital at December 31, 2000 $ 3,443 $ 342,195 $ 345,638 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 5 1228 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 185,992 $ 49,060 $(114,543) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties -- -- 85,160 Depletion 17,913 28,843 69,935 Gain on disposition of assets (4,027) -- (1,550) Changes in assets and liabilities: Accounts receivable (18,960) (11,532) 7,229 Accounts payable (2,158) 1,866 (5,686) --------- --------- --------- Net cash provided by operating activities 178,760 68,237 40,545 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (1,473) (2,744) (3,804) Proceeds from disposition of assets 4,027 2,448 1,550 --------- --------- --------- Net cash provided by (used in) investing activities 2,554 (296) (2,254) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (185,568) (53,182) (55,355) --------- --------- --------- Net increase (decrease) in cash (4,254) 14,759 (17,064) Cash at beginning of year 35,943 21,184 38,248 --------- --------- --------- Cash at end of year $ 31,689 $ 35,943 $ 21,184 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1229 PARKER & PARSLEY 88-C, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 88-C, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the 7 1230 respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $85,160 related to its proved oil and gas properties during 1998. 8 1231 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $24,633 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 185,992 $ 49,060 $(114,543) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 15,635 26,451 67,898 Impairment of oil and gas properties for financial reporting purposes -- -- 85,160 Other, net (560) 2,209 (3,307) --------- --------- --------- Net income per Federal income tax returns $ 201,067 $ 77,720 $ 35,208 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ------------- ------------- ------------- Development costs $ 1,473 $ 2,744 $ 3,804 ============ ============ ============
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 88,684 $ 91,543 Completed wells and equipment 1,663,203 1,700,045 ----------- ----------- 1,751,887 1,791,588 Accumulated depletion (1,481,594) (1,504,855) ----------- ----------- Net oil and gas properties $ 270,293 $ 286,733 =========== ===========
9 1232 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ------- ------- ------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $41,699 $40,071 $39,194 Reimbursement of general and administrative expenses $ 6,776 $ 782 $ 1,889
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, Parker & Parsley 88-C Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA(1) Partnerships (2) -------------- ---------------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and five limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 88-C Conv., L.P. is 41.612462% and 58.387538%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1233
Oil and NGLs Gas (bbls) (mcf) -------- -------- Net proved reserves at January 1, 1998 129,544 161,856 Revisions (53,503) (49,926) Production (10,596) (14,091) -------- -------- Net proved reserves at December 31, 1998 65,445 97,839 Revisions 88,560 137,904 Production (10,071) (15,049) -------- -------- Net proved reserves at December 31, 1999 143,934 220,694 Revisions 25,631 16,368 Production (11,023) (13,979) -------- -------- Net proved reserves at December 31, 2000 158,542 223,083 ======== ========
As of December 31, 2000 the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.56 per barrel of NGLs and $7.78 per mcf of gas, discounted at 10% was approximately $1,229,000 and undiscounted was $2,564,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, -------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and gas producing activities: Future cash inflows $ 5,259 $ 3,584 $ 717 Future production costs (2,695) (2,081) (558) ------- ------- ------- 2,564 1,503 159 10% annual discount factor (1,335) (711) (49) ------- ------- ------- Standardized measure of discounted future net cash flows $ 1,229 $ 792 $ 110 ======= ======= =======
11 1234
For the years ended December 31, -------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (208) $ (82) $ (41) Net changes in prices and production costs 471 354 (328) Revisions of previous quantity estimates 196 641 (67) Accretion of discount 79 11 51 Changes in production rates, timing and other (101) (242) (19) ------- ------- ------- Change in present value of future net revenues 437 682 (404) ------- ------- ------- Balance, beginning of year 792 110 514 ------- ------- ------- Balance, end of year $ 1,229 $ 792 $ 110 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 ------- ------- -------- Plains Marketing, L.P. 52% 45% - Genesis Crude Oil, L.P. - - 51% Western Gas Resources, Inc. 4% 6% 21%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $15,388 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's 12 1235 revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $2,431,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1236 PARKER & PARSLEY 88-C, L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 80% to $316,382 for 2000 as compared to $175,483 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 7,593 barrels of oil, 3,430 barrels of natural gas liquids ("NGLs") and 13,979 mcf of gas were sold, or 13,353 barrel of oil equivalents ("BOEs"). In 1999, 6,595 barrels of oil, 3,476 barrels of NGLs and 15,049 mcf of gas were sold, or 12,579 BOEs. 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 increased $12.09, or 70%, from $17.24 in 1999 to $29.33 in 2000. The average price received per barrel of NGLs increased $5.41, or 52%, from $10.42 in 1999 to $15.83 in 2000. The average price received per mcf of gas increased 66% from $1.70 in 1999 to $2.82 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $4,027 recognized in 2000 was due to salvage income from equipment credits of $3,352 on one well plugged and abandoned during the current year and $675 on one fully depleted well. Total costs and expenses increased in 2000 to $137,222 as compared to $127,758 in 1999, an increase of $9,464, or 7%. The increase was primarily due to increases in production costs, general and administrative expenses ("G&A") and abandoned property costs, offset by a decline in depletion. Production costs were $108,093 in 2000 and $93,481 in 1999, resulting in a $14,612, or 16%, increase. The increase was primarily due to higher production taxes associated with higher oil and gas prices, additional well maintenance and workover costs incurred to stimulate well production. Abandoned property costs of $1,544 during 2000 were related to the plugging and abandonment of one well during the current year. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 78% from $5,434 in 1999 to $9,672 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $6,776 in 2000 and $782 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 2000 as compared to $28,843 in 1999, representing a decrease of $10,930, or 38%. This decrease was primarily due to a 18,820 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices, offset by an increase in oil production of 998 barrels for the period ended December 31, 2000 compared to the same period in 1999. 1237 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 23% to $175,483 from $142,874 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 6,595 barrels of oil, 3,476 barrels of NGLs and 15,049 mcf of gas were sold, or 12,579 BOEs. In 1998, 7,453 barrels of oil, 3,143 barrels of NGLs and 14,091 mcf of gas were sold, or 12,945 BOEs. The average price received per barrel of oil increased $3.94, or 30%, from $13.30 in 1998 to $17.24 in 1999. The average price received per barrel of NGLs increased $3.48, or 50%, from $6.94 in 1998 to $10.42 in 1999. The average price received per mcf of gas increased 10% from $1.55 in 1998 to $1.70 in 1999. A gain on disposition of assets of $1,550 was recognized during 1998 from equipment credits on a well plugged and abandoned in 1997. Total costs and expenses decreased in 1999 to $127,758 as compared to $260,912 in 1998, a decrease of $133,154, or 51%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $93,481 in 1999 and $101,514 in 1998, resulting in an $8,033, or 8%, decrease. The decrease was due to declines in well maintenance costs, workover expenses and ad valorem taxes, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 26% from $4,303 in 1998 to $5,434 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $782 in 1999 and $1,889 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $85,160 related to its oil and gas properties during 1998. Depletion was $28,843 in 1999 compared to $69,935 in 1998, representing a decrease of $41,092, or 59%. This decrease was the result of a combination of factors that included an increase in proved reserves of 56,967 barrels of oil during 1999 due to higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 858 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1238 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $110,523 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $142,369, offset by increases in production costs paid of $14,612, G&A expenses paid of $4,238, abandoned property costs paid of $1,544 and working capital of $11,452. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $116,842 to oil and gas receipts and an increase of $25,527 resulting from an increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Proceeds from disposition of assets of $4,027 during 2000 were due to salvage income from equipment credits of $3,352 on one well plugged and abandoned during the current year and $675 on one fully depleted well. Proceeds from disposition of assets of $2,448 during 1999 were from equipment credits on active wells. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $185,568, of which $1,856 was distributed to the managing general partner and $183,712 to the limited partners. In 1999, cash distributions to the partners were $53,182, of which $532 was distributed to the managing general partner and $52,650 to the limited partners. 1239 PARKER & PARSLEY 88-C, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, --------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 -------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $153,108 $ 141,499 $ 316,382 $ 175,483 $ 142,874 $ 202,605 $ 265,257 ======== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 85,160 $ 98,341 $ 3,203 ======== ========== ========== ========== ========== ========== ========== Net income (loss) $ 80,203 $ 78,884 $ 185,992 $ 49,060 $ (114,543) $ (60,727) $ 91,333 ======== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 802 $ 789 $ 1,860 $ 491 $ (1,145) $ (607) $ 913 ======== ========== ========== ========== ========== ========== ========== Limited partners $ 79,401 $ 78,095 $ 184,132 $ 48,569 $ (113,398) $ (60,120) $ 90,420 ======== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 32.66 $ 32.12 $ 75.74 $ 19.98 $ (46.65) $ (24.73) $ 37.19 ======== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 24.91 $ 34.73 $ 75.57 $ 21.66 $ 22.54 $ 44.49 $ 47.64 ======== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $372,044 $ 346,858 $ 349,884 $ 351,618 $ 353,874 $ 529,458 $ 696,541 ======== ========== ========== ========== ========== ========== ==========
1240 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 -------------------- THE DATE OF THIS SUPPLEMENT IS , 2001 -------------------- This document contains important information specific to Parker & Parsley Producing Properties 88-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Producing Properties 88-A, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1241 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 5,611 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 6,928 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 2,053 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 368.52 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the past four quarterly distributions including the distribution in July 2001 (b), (c) 4.13 times Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 267.85 -- as of December 31, 2000 (c) $ 263.74 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 346.58 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 358.41 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment (f) --
----------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Not applicable. Since this partnership purchased producing properties, there were no intangible drilling and development costs nor any related write-off for tax purposes. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS Although not required by the partnership agreement for the partnership, special legal counsel will render an opinion on behalf of the limited partners to Pioneer USA that (1) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners; and (2) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion will be submitted for approval by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2038, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1242 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, 2001 Commission File No. 33-19133-A PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (Exact name of Registrant as specified in its charter) Delaware 75-2225758 ----------------------------------------- --------------------- (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 / / 1243 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000.................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000................... 4 Statement of Partners' Capital for the six months ended June 30, 2001................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................ 6 Notes to Financial Statements........................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K........................ 11 Signatures.............................................. 12
2 1244 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 369,133 $ 253,499 Accounts receivable - oil and gas sales 68,621 115,810 ---------- ---------- Total current assets 437,754 369,309 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 4,855,712 4,855,712 Accumulated depletion (3,755,768) (3,719,241) ---------- ---------- Net oil and gas properties 1,099,944 1,136,471 ---------- ---------- $ 1,537,698 $ 1,505,780 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 19,658 $ 11,054 Partners' capital: Managing general partner 15,113 14,879 Limited partners (11,222 interests) 1,502,927 1,479,847 ---------- ---------- 1,518,040 1,494,726 ---------- ---------- $ 1,537,698 $ 1,505,780 ========== ==========
The financial information included as of June 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 1245 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 154,567 $ 197,479 $ 350,012 $ 346,895 Interest 3,000 4,202 6,225 7,804 Gain on disposition of assets 6,447 - 6,447 9,859 -------- -------- -------- -------- 164,014 201,681 362,684 364,558 -------- -------- -------- -------- Costs and expenses: Oil and gas production 61,994 124,619 127,329 199,253 General and administrative 4,643 5,925 10,506 10,407 Depletion 16,473 17,322 36,527 29,947 Abandoned property 10,766 - 10,766 - -------- -------- -------- -------- 93,876 147,866 185,128 239,607 -------- -------- -------- -------- Net income $ 70,138 $ 53,815 $ 177,556 $ 124,951 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 702 $ 539 $ 1,776 $ 1,250 ======== ======== ======== ======== Limited partners $ 69,436 $ 53,276 $ 175,780 $ 123,701 ======== ======== ======== ======== Net income per limited partnership interest $ 6.18 $ 4.74 $ 15.66 $ 11.02 ======== ======== ======== ========
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. 4 1246 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 14,879 $1,479,847 $1,494,726 Distributions (1,542) (152,700) (154,242) Net income 1,776 175,780 177,556 --------- --------- --------- Balance at June 30, 2001 $ 15,113 $1,502,927 $1,518,040 ========= ========= =========
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. 5 1247 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 177,556 $ 124,951 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 36,527 29,947 Gain on disposition of assets (6,447) (9,859) Changes in assets and liabilities: Accounts receivable 47,189 (14,004) Accounts payable 8,604 12,811 --------- --------- Net cash provided by operating activities 263,429 143,846 --------- --------- Cash flows from investing activities: Additions to oil and gas properties - (782) Proceeds from asset dispositions 6,447 9,859 --------- --------- Net cash provided by investing activities 6,447 9,077 --------- --------- Cash flows used in financing activities: Cash distributions to partners (154,242) (232,627) --------- --------- Net increase (decrease) in cash 115,634 (79,704) Cash at beginning of period 253,499 323,271 --------- --------- Cash at end of period $ 369,133 $ 243,567 ========= =========
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 1248 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Producing Properties 88-A, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 1% to $350,012 for the six months ended June 30, 2001 as compared to $346,895 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by a decline in production and lower average prices received for oil. For the six months ended June 30, 2001, 8,258 barrels of oil, 3,840 7 1249 barrels of natural gas liquids ("NGLs") and 16,169 mcf of gas were sold, or 14,793 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 8,488 barrels of oil, 5,238 barrels of NGLs and 20,402 mcf of gas were sold, or 17,126 BOEs. The average price received per barrel of oil decreased $.53, or 2%, from $27.71 for the six months ended June 30, 2000 to $27.18 for the same period in 2001. The average price received per barrel of NGLs increased $.47, or 3%, from $13.93 during the six months ended June 30, 2000 to $14.40 for the same period in 2001. The average price received per mcf of gas increased 129% from $1.90 during the six months ended June 30, 2000 to $4.35 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 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 six months ended June 30, 2001. Gains on disposition of assets of $6,447 and $9,859 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during the six months ended June 30, 2001 resulted from equipment credits received on one well that was plugged and abandoned during the current period. Expenses incurred during the six months ended June 30, 2001 to plug this well were $10,766. The gain recognized during the six months ended June 30, 2000 resulted from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses decreased to $185,128 for the six months ended June 30, 2001 as compared to $239,607 for the same period in 2000, a decrease of $54,479, or 23%. This decrease was primarily due to a decline in production costs, offset by increases in abandoned property costs, depletion and general and administrative expenses ("G&A"). Production costs were $127,329 for the six months ended June 30, 2001 and $199,253 for the same period in 2000, resulting in a decrease of $71,924, or 36%. This decrease was primarily due to lower workover and well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 1% from $10,407 for the six months ended June 30, 2000 to $10,506 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $36,527 for the six months ended June 30, 2001 as compared to $29,947 for the same period in 2000, an increase of $6,580, or 22%. This increase was primarily due to a downward revision to proved reserves during the period ended June 30, 2001 due to lower commodity prices as compared to the same period in 2000. 8 1250 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 22% to $154,567 for the three months ended June 30, 2001 as compared to $197,479 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and NGLs and a decline in production, offset by higher average prices received for gas. For the three months ended June 30, 2001, 3,841 barrels of oil, 1,984 barrels of NGLs and 7,439 mcf of gas were sold, or 7,065 BOEs. For the three months ended June 30, 2000, 4,780 barrels of oil, 2,886 barrels of NGLs and 10,613 mcf of gas were sold, or 9,435 BOEs. The average price received per barrel of oil decreased $.58, or 2%, from $27.50 for the three months ended June 30, 2000 to $26.92 for the same period in 2001. The average price received per barrel of NGLs decreased $1.83, or 12%, from $14.66 during the three months ended June 30, 2000 to $12.83 for the same period in 2001. The average price received per mcf of gas increased 55% from $2.23 during the three months ended June 30, 2000 to $3.46 for the same period in 2001. Gain on disposition of assets of $6,447 was recognized during the three months ended June 30, 2001 resulting from equipment credits received on one well plugged and abandoned during the current period. Expenses incurred to plug this well were $10,766. Costs and Expenses: Total costs and expenses decreased to $93,876 for the three months ended June 30, 2001 as compared to $147,866 for the same period in 2000, a decrease of $53,990, or 37%. This decrease was primarily due to declines in production costs, G&A and depletion, offset by an increase in abandoned property costs. Production costs were $61,994 for the three months ended June 30, 2001 and $124,619 for the same period in 2000 resulting in a $62,625 decrease, or 50%. This decrease was primarily due to lower workover and well maintenance costs. During this period, G&A decreased 22% from $5,925 for the three months ended June 30, 2000 to $4,643 for the same period in 2001, primarily due to a lower allocation of the managing general partner's G&A being allocated as a result of lower oil and gas revenues during the three months ended June 30, 2001 as compared to the period ended June 30, 2000, in addition to decreased audit and tax fees. Depletion was $16,473 for the three months ended June 30, 2001 as compared to $17,322 for the same period in 2000, a decrease of $849, or 5%. This decrease was primarily due to a decline in oil production of 939 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 9 1251 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $119,583 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was primarily due to a reduction of $56,986 in working capital, an increase of $1,538 in oil and gas sales receipts and a decline in production costs of $71,924, offset by increases in abandoned property costs of $10,766 and G&A expenses of $99. The increase in oil and gas receipts resulted from the increase in gas and NGL prices of $52,442 during 2001, offset by a decline of $46,359 in production and a $4,545 decline in oil prices in 2001 as compared to the same period in 2000. The decrease in production costs was primarily due to lower workover and well maintenance costs. The increase in G&A was primarily due to an increase in audit and tax fees. Net Cash Provided by Investing Activities The Partnership's investing activities during the six months ended June 30, 2000 were related to expenditures for upgrades of oil and gas equipment on active properties. Proceeds from disposition of assets of $6,447 and $9,859 were recognized during the six months ended June 30, 2001 and 2000, respectively. Proceeds during 2001 were from equipment credits on one well that was plugged and abandoned during the current period. Proceeds during 2000 were from equipment credits on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $154,242, of which $1,542 was distributed to the managing general partner and $152,700 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $232,627, of which $2,326 was distributed to the managing general partner and $230,301 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships 10 1252 that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 1253 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) SIGNATURES 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 88-A, L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1254 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-19133-A PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2225758 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $5,572,000. As of March 8, 2001, the number of outstanding limited partnership interests was 11,222. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1255 PART I ITEM 1. BUSINESS Parker & Parsley Producing Properties 88-A, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 11,222 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 59% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that 2 1256 its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of working interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. The Partnership completed one purchase of producing properties. This acquisition involved the purchase of working interests in 21 properties, all of which are operated by the managing general partner. In subsequent years, the Partnership participated in the drilling of three additional wells and one well was plugged and abandoned. At December 31, 2000 the Partnership had 23 producing oil and gas properties. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1257 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 11,222 outstanding limited partnership interests held of record by 507 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $458,003 and $165,195, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ----------- ---------- ----------- ---------- ---------- Operating results: Oil and gas sales $ 742,384 $ 495,753 $ 443,496 $ 753,775 $ 938,418 =========== ========== =========== ========== ========== Impairment of oil and gas properties $ - $ 280,950 $ - $ 6,231 $ - =========== ========== =========== ========== ========== Net income (loss) $ 357,190 $ (111,304) $ (13,621) $ 255,412 $ 424,569 =========== ========== =========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,572 $ (1,113) $ (136) $ 2,554 $ 4,246 =========== ========== =========== ========== ========== Limited partners $ 353,618 $ (110,191) $ (13,485) $ 252,858 $ 420,323 =========== ========== =========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 31.51 $ (9.82) $ (1.20) $ 22.53 $ 37.46 =========== ========== =========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 40.81 $ 14.72 $ 24.99 $ 50.52 $ 45.09 =========== ========== =========== ========== ========== At year end: ------------ Identifiable assets $ 1,505,780 $1,613,628 $ 1,884,917 $2,212,937 $2,491,855 =========== ========== =========== ========== ==========
4 1258 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 50% to $742,384 for 2000 as compared to $495,753 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 17,170 barrels of oil, 9,806 barrels of natural gas liquids ("NGLs") and 37,939 mcf of gas were sold, or 33,299 barrel of oil equivalents ("BOEs"). In 1999, 19,878 barrels of oil, 10,402 barrels of NGLs and 44,467 mcf of gas were sold, or 37,691 BOEs. 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 increased $12.62, or 75%, from $16.82 for 1999 to $29.44 in 2000. The average price received per barrel of NGLs increased $5.10, or 56%, from $9.18 for 1999 to $14.28 in 2000. The average price received per mcf of gas increased 72%, from $1.48 for 1999 to $2.55 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $9,859 was recognized during 2000 from salvage income received on one fully depleted well. Total costs and expenses decreased in 2000 to $411,959 as compared to $619,585 in 1999, a decrease of $207,626, or 34%. This decrease was primarily the result of declines in the impairment of oil and gas properties and depletion, offset by increases in production costs and general and administrative expenses ("G&A"). Production costs were $322,751 in 2000 and $237,875 in 1999, resulting in an increase of $84,876, or 36%. The increase was primarily due to additional workover expense and well maintenance costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 50% from $14,872 in 1999 to $22,272 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $18,064 in 2000 and $8,371 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 1259 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $280,950 related to its oil and gas properties during 1999. Depletion was $66,936 in 2000 as compared to $85,888 in 1999, representing a decrease of $18,952, or 22%. This decrease was primarily due to a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999 and a decline in oil production of 2,708 barrels for the period ended December 31, 2000 compared to the same period in 1999, offset by a 20,203 barrels of oil decrease in proved reserves during 2000 as a result of a significant well having lower reserves due to a revised decline curve. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 12% to $495,753 from $443,496 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 19,878 barrels of oil, 10,402 barrels of NGLs and 44,467 mcf of gas were sold, or 37,691 BOEs. In 1998, 22,482 barrels of oil, 12,009 barrels of NGLs and 51,099 mcf of gas were sold, or 43,008 BOEs. The average price received per barrel of oil increased $3.68, or 28%, from $13.14 for 1998 to $16.82 in 1999. The average price received per barrel of NGLs increased $2.87, or 45%, from $6.31 for 1998 to $9.18 in 1999. The average price received per mcf of gas increased 5%, from $1.41 for 1998 to $1.48 in 1999. Total costs and expenses increased in 1999 to $619,585 as compared to $471,884 in 1998, an increase of $147,701, or 31%. This increase was primarily the result of increases in the impairment of oil and gas properties and G&A expenses, offset by declines in depletion and production costs. Production costs were $237,875 in 1999 and $252,339 in 1998, resulting in a $14,464, or 6%, decrease. The decrease was due to less well maintenance costs and ad valorem taxes, offset by an increase in production taxes due to the increase in oil and gas revenues. During this period, G&A increased 12% from $13,305 in 1998 to $14,872 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $8,371 in 1999 and $9,891 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $280,950 related to its oil and gas properties during 1999. Depletion was $85,888 in 1999 compared to $206,240 in 1998. This represented a decrease of $120,352, or 58%. This decrease was the result of an increase in proved reserves of 77,231 barrels of oil during 1999 as a result of higher commodity prices and a decline in oil production of 2,604 6 1260 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $159,721 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $251,009 and a decline in working capital of $988, offset by increases in production costs paid of $84,876 and G&A expenses paid of $7,400. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $355,912 to oil and gas receipts, offset by $104,903 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional workover expenses and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 were related to various upgrades of equipment. Proceeds from asset dispositions of $9,859 recognized during 2000 were from equipment credits received on one fully depleted well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $462,629, of which $4,626 was distributed to the managing general partner and $458,003 to the limited partners. In 1999, cash distributions to the partners were $166,787, of which $1,592 was distributed to the managing general partner and $165,195 to the limited partners. 7 1261 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley Producing Properties 88-A, L.P.: Independent Auditors' Report......................................................... 9 Balance Sheets as of December 31, 2000 and 1999....................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 13 Notes to Financial Statements........................................................ 14
8 1262 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Producing Properties 88-A, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley Producing Properties 88-A, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Producing Properties 88-A, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 1263 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 253,499 $ 323,271 Accounts receivable - oil and gas sales 115,810 87,732 ----------- ----------- Total current assets 369,309 411,003 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 4,855,712 4,854,930 Accumulated depletion (3,719,241) (3,652,305) ----------- ----------- Net oil and gas properties 1,136,471 1,202,625 ----------- ----------- $ 1,505,780 $ 1,613,628 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 11,054 $ 13,463 Partners' capital: Managing general partner 14,879 15,933 Limited partners (11,222 interests) 1,479,847 1,584,232 ----------- ----------- 1,494,726 1,600,165 ----------- ----------- $ 1,505,780 $ 1,613,628 =========== ===========
The accompanying notes are an integral part of these financial statements. 10 1264 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 -------- --------- --------- Revenues: Oil and gas $742,384 $ 495,753 $ 443,496 Interest 16,906 12,528 14,767 Gain on disposition of assets 9,859 - - -------- --------- --------- 769,149 508,281 458,263 -------- --------- --------- Costs and expenses: Oil and gas production 322,751 237,875 252,339 General and administrative 22,272 14,872 13,305 Impairment of oil and gas properties - 280,950 - Depletion 66,936 85,888 206,240 -------- --------- --------- 411,959 619,585 471,884 -------- --------- --------- Net income (loss) $357,190 $(111,304) $ (13,621) ======== ========= ========= Allocation of net income (loss): Managing general partner $ 3,572 $ (1,113) $ (136) ======== ========= ========= Limited partners $353,618 $(110,191) $ (13,485) ======== ========= ========= Net income (loss) per limited partnership interest $ 31.51 $ (9.82) $ (1.20) ======== ========= =========
The accompanying notes are an integral part of these financial statements. 11 1265 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------- ----------- ----------- Partners' capital at January 1, 1998 $ 21,564 $ 2,153,538 $ 2,175,102 Distributions (2,790) (280,435) (283,225) Net loss (136) (13,485) (13,621) -------- ----------- ----------- Partners' capital at December 31, 1998 18,638 1,859,618 1,878,256 Distributions (1,592) (165,195) (166,787) Net loss (1,113) (110,191) (111,304) -------- ----------- ----------- Partners' capital at December 31, 1999 15,933 1,584,232 1,600,165 Distributions (4,626) (458,003) (462,629) Net income 3,572 353,618 357,190 -------- ----------- ----------- Partners' capital at December 31, 2000 $ 14,879 $ 1,479,847 $ 1,494,726 ======== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 1266 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 357,190 $(111,304) $ (13,621) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - 280,950 - Depletion 66,936 85,888 206,240 Gain on disposition of assets (9,859) - - Changes in assets and liabilities: Accounts receivable (28,078) (38,277) 69,159 Accounts payable (2,409) 6,802 (31,174) --------- --------- --------- Net cash provided by operating activities 383,780 224,059 230,604 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas equipment (782) (12,230) (1,181) Proceeds from asset dispositions 9,859 - - --------- --------- --------- Net cash provided by (used in) investing activities 9,077 (12,230) (1,181) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (462,629) (166,787) (283,225) --------- --------- --------- Net increase (decrease) in cash (69,772) 45,042 (53,802) Cash at beginning of year 323,271 278,229 332,031 --------- --------- --------- Cash at end of year $ 253,499 $ 323,271 $ 278,229 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 13 1267 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Producing Properties 88-A, L.P. (the "Partnership") is a limited partnership organized in 1988 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). The Partnership engages in oil and gas production in Texas and is not involved in any industry segment other than oil and gas. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 1268 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $280,950 related to its proved oil and gas properties during 1999. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $949,574 less than the tax basis at December 31, 2000. 15 1269 The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- -------- Net income (loss) per statements of operations $ 357,190 $(111,304) $(13,621) Depletion and depreciation provisions for tax reporting purposes less than (greater than) amounts for financial reporting purposes (55,096) 24,264 26,047 Impairment of oil and gas properties for financial reporting purposes - 280,950 - Other (247) (441) 441 --------- --------- -------- Net income per Federal income tax returns $ 301,847 $ 193,469 $ 12,867 ========= ========= ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- -------- --------- Property acquisition costs $ 782 $ 12,230 $ 1,181 ======== ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 4,109,672 $ 4,108,890 Completed wells and equipment 746,040 746,040 ----------- ----------- 4,855,712 4,854,930 Accumulated depletion (3,719,241) (3,652,305) ----------- ----------- Net oil and gas properties $ 1,136,471 $ 1,202,625 =========== ===========
16 1270 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 98,073 $ 91,828 $ 99,719 Reimbursement of general and administrative expenses $ 18,064 $ 8,371 $ 9,891
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees Producing Properties 88-A ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a general partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- ----------- Revenues: Revenues from oil and gas production, proceeds from sales of producing properties and all other revenues: Before payout 4.040405% 95.959595% After payout (2) 19.191920% 80.808080% Costs and expenses: Property acquisition costs, operating costs, general and administrative expenses and other costs: Before payout 4.040405% 95.959595% After payout (2) 19.191920% 80.808080%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 78 limited partner interests owned by Pioneer USA. (2) The Partnership reached payout in September 1997. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 1271
Oil and NGLs Gas (bbls) (mcf) ------------ -------- Net proved reserves at January 1, 1998 563,684 808,875 Revisions (105,464) (18,612) Production (34,491) (51,099) --------- -------- Net proved reserves at December 31, 1998 423,729 739,164 Revisions 113,184 157,201 Production (30,280) (44,467) --------- -------- Net proved reserves at December 31, 1999 506,633 851,898 Revisions (52,176) (249,428) Production (26,976) (37,939) --------- -------- Net proved reserves at December 31, 2000 427,481 564,531 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $12.90 per barrel of NGLs and $7.43 per mcf of gas, discounted at 10% was approximately $3,258,000 and undiscounted was $6,795,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 18 1272
For the years ended December 31, ------------------------------------ 2000 1999 1998 -------- -------- ------- (in thousands) Oil and gas producing activities: Future cash inflows $ 13,506 $ 12,421 $ 4,629 Future production costs (6,711) (5,947) (3,105) -------- -------- ------- 6,795 6,474 1,524 10% annual discount factor (3,537) (3,486) (609) -------- -------- ------- Standardized measure of discounted future net cash flows $ 3,258 $ 2,988 $ 915 ======== ======== ======= For the years ended December 31, ----------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (420) $ (258) $ (191) Net changes in prices and production costs 906 2,308 (1,425) Revisions of previous quantity estimates (564) 836 (152) Accretion of discount 299 92 244 Changes in production rates, timing and other 49 (905) (5) ------- ------- ------- Change in present value of future net revenues 270 2,073 (1,529) ------- ------- ------- Balance, beginning of year 2,988 915 2,444 ------- ------- ------- Balance, end of year $ 3,258 $ 2,988 $ 915 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 59% 57% - Western Gas Resources, Inc. 4% 6% 28% Genesis Crude Oil, L.P. - - 57%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $44,879 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total 19 1273 contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $5,611,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 1274 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Directors Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 1275 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 1276 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the limited partnership agreement, Pioneer USA pays 1% of the Program's acquisition, drilling and completion costs and 1% of its operating, general and administrative expenses. In return, Pioneer USA is allocated 1% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 78 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 23 1277
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 98,073 $ 91,828 $ 99,719 Reimbursement of general and administrative expenses $ 18,064 $ 8,371 $ 9,891
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 1278 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 1279 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 88-A, L.P. Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield -------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 26, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 26, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 26, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 26, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
26 1280 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Agreement of Limited Partnership of - Parker & Parsley Producing Properties 88-A, L.P. incorporated by reference to Exhibit A of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-19133) (hereinafter referred to as the Partnership's Registration Statement) 4(b) Subscription Agreement and Power of - Attorney incorporated by reference to Exhibit C of the Partnership's Registration Statement 4(d) Form of Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4d of the Partnership's Registration Statement 10(b) Program Agreement incorporated by reference - to Exhibit B of the Partnership's Registration Statement
27 1281 PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, --------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 -------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 350,012 $ 346,895 $ 742,384 $ 495,753 $ 443,496 $ 753,775 $ 938,418 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ 280,950 $ -- $ 6,231 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 177,556 $ 124,951 $ 357,190 $ (111,304) $ (13,621) $ 255,412 $ 424,569 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,776 $ 1,250 $ 3,572 $ (1,113) $ (136) $ 2,554 $ 4,246 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 175,780 $ 123,701 $ 353,618 $ (110,191) $ (13,485) $ 252,858 $ 420,323 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 15.66 $ 11.02 $ 31.51 $ (9.82) $ (1.20) $ 22.53 $ 37.46 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 13.61 $ 20.52 $ 40.81 $ 14.72 $ 24.99 $ 50.52 $ 45.09 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,537,698 $1,518,763 $1,505,780 $1,613,628 $1,884,917 $2,212,937 $2,491,855 ========== ========== ========== ========== ========== ========== ==========
1282 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Private Investment 88, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Private Investment 88, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1283 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 9,960 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 11,812 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 3,504 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 351.76 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.97 times the past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 170.44 -- as of December 31, 2000(c) $ 160.08 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 329.66 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 341.39 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 152
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2038, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1284 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1285 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 384,463 $ 174,638 Accounts receivable - oil and gas sales 136,288 190,189 ---------- ---------- Total current assets 520,751 364,827 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 7,351,559 7,348,142 Accumulated depletion (6,132,322) (6,092,889) ---------- ---------- Net oil and gas properties 1,219,237 1,255,253 ---------- ---------- $ 1,739,988 $ 1,620,080 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 25,050 $ 9,440 Partners' capital: Managing general partner 17,314 16,271 Limited partners (249 interests) 1,697,624 1,594,369 ---------- ---------- 1,714,938 1,610,640 ---------- ---------- $ 1,739,988 $ 1,620,080 ========== ==========
The financial information included as of June 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. 2 1286 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 286,574 $ 324,217 $ 625,806 $ 598,423 Interest 2,754 3,409 5,593 6,002 -------- -------- -------- -------- 289,328 327,626 631,399 604,425 -------- -------- -------- -------- Costs and expenses: Oil and gas production 113,938 101,258 235,058 212,006 General and administrative 7,164 9,727 15,645 17,953 Depletion 20,388 19,324 39,433 40,261 -------- -------- -------- -------- 141,490 130,309 290,136 270,220 -------- -------- -------- -------- Net income $ 147,838 $ 197,317 $ 341,263 $ 334,205 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,479 $ 1,973 $ 3,413 $ 3,342 ======== ======== ======== ======== Limited partners $ 146,359 $ 195,344 $ 337,850 $ 330,863 ======== ======== ======== ======== Net income per limited partnership interest $ 587.79 $ 784.52 $1,356.83 $1,328.77 ======== ======== ======== ========
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. 3 1287 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 16,271 $1,594,369 $1,610,640 Distributions (2,370) (234,595) (236,965) Net income 3,413 337,850 341,263 --------- --------- --------- Balance at June 30, 2001 $ 17,314 $1,697,624 $1,714,938 ========= ========= =========
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. 4 1288 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 341,263 $ 334,205 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 39,433 40,261 Changes in assets and liabilities: Accounts receivable 53,901 (35,056) Accounts payable 15,610 16,515 --------- --------- Net cash provided by operating activities 450,207 355,925 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (3,417) (4,269) Proceeds from asset dispositions - 467 --------- --------- Net cash used in investing activities (3,417) (3,802) --------- --------- Cash flows used in financing activities: Cash distributions to partners (236,965) (354,330) --------- --------- Net increase (decrease) in cash 209,825 (2,207) Cash at beginning of period 174,638 200,529 --------- --------- Cash at end of period $ 384,463 $ 198,322 ========= =========
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. 5 1289 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Private Investment 88, L.P. (the "Partnership") was organized in 1988 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1989. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 5% to $625,806 for the six months ended June 30, 2001 as compared to $598,423 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by 6 1290 a decrease in production. For the six months ended June 30, 2001, 15,090 barrels of oil, 4,484 barrels of natural gas liquids ("NGLs") and 28,101 mcf of gas were sold, or 24,258 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 15,271 barrels of oil, 8,042 barrels of NGLs and 30,899 mcf of gas were sold, or 28,463 BOEs. The average price received per barrel of oil increased slightly from $27.54 for the six months ended June 30, 2000 to $27.55 for the same period in 2001. The average price received per barrel of NGLs increased $2.26, or 16%, from $14.01 during the six months ended June 30, 2000 to $16.27 for the same period in 2001. The average price received per mcf of gas increased 131% from $2.11 during the six months ended June 30, 2000 to $4.88 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $290,136 for the six months ended June 30, 2001 as compared to $270,220 for the same period in 2000, an increase of $19,916, or 7%. This increase was due to an increase in production costs, offset by declines in depletion and general and administrative expenses ("G&A"). Production costs were $235,058 for the six months ended June 30, 2001 and $212,006 for the same period in 2000, resulting in a $23,052 increase, or 11%. The increase was the result of additional well maintenance and workover costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 13%, from $17,953 for the six months ended June 30, 2000 to $15,645 for the same period in 2001 due to a decrease in audit and tax fees. Depletion was $39,433 for the six months ended June 30, 2001 as compared to $40,261 for the same period in 2000, a decrease of $828, or 2%. This decrease was due to a decline in oil production of 181 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 12% to $286,574 for the three months ended June 30, 2001 as compared to $324,217 for the same period in 2000. The decrease in revenues resulted from a decrease in production and a decline in the average price received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 7,491 barrels of oil, 7 1291 2,446 barrels of NGLs and 13,463 mcf of gas were sold, or 12,181 BOEs. For the three months ended June 30, 2000, 8,143 barrels of oil, 4,278 barrels of NGLs and 15,250 mcf of gas were sold, or 14,963 BOEs. The average price received per barrel of oil decreased $.67, or 2%, from $27.83 for the three months ended June 30, 2000 to $27.16 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $.13, or 1%, from $13.99 during the three months ended June 30, 2000 to $14.12 for the same period in 2001. The average price received per mcf of gas increased 46% to $3.61 during the three months ended June 30, 2001 from $2.48 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $141,490 for the three months ended June 30, 2001 as compared to $130,309 for the same period in 2000, an increase of $11,181, or 9%. This increase was due to increases in production costs and depletion, offset by a decrease in G&A. Production costs were $113,938 for the three months ended June 30, 2001 and $101,258 for the same period in 2000, resulting in a $12,680 increase, or 13%. The increase was due to additional well maintenance costs incurred to stimulate well production. During this period, G&A decreased 26%, from $9,727 for the three months ended June 30, 2000 to $7,164 for the same period in 2001 due to a decrease in audit and tax fees. Depletion was $20,388 for the three months ended June 30, 2001 as compared to $19,324 for the same period in 2000, an increase of $1,064, or 6%. This increase was attributable to a decline in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decline in oil production of 652 barrels for the three months ended June 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 $94,282 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $26,974 and reductions in working capital of $88,052 and G&A expenses of $2,308, offset by an increase in production costs of $23,052. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $103,907 to oil and gas receipts, offset by $76,933 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The decrease in G&A was primarily due to a decrease in audit and tax fees. 8 1292 Net Cash Used in Investing Activities The Partnership's investing activities for the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on several oil and gas properties. Proceeds of $467 recognized during the six months ended June 30, 2000 were due to equipment credits on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $236,965, of which $2,370 was distributed to the managing general partner and $234,595 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $354,330, of which $3,543 was distributed to the managing general partner and $350,787 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) final proxy statement/prospectus and other relevant documents relating to 9 1293 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. 10 1294 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1295 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Private Investment 88, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley Private Investment 88, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Private Investment 88, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1296 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---- ---- ASSETS ------ Current assets: Cash $ 174,638 $ 200,529 Accounts receivable - oil and gas sales 190,189 115,936 ----------- ----------- Total current assets 364,827 316,465 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 7,348,142 7,339,803 Accumulated depletion (6,092,889) (6,015,639) ----------- ----------- Net oil and gas properties 1,255,253 1,324,164 ----------- ----------- $ 1,620,080 $ 1,640,629 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 9,440 $ 16,379 Partners' capital: Managing general partner 16,271 16,407 Limited partners (249 interests) 1,594,369 1,607,843 ----------- ----------- 1,610,640 1,624,250 ----------- ----------- $ 1,620,080 $ 1,640,629 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1297 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ---------- ---------- ---------- Revenues: Oil and gas $1,311,024 $ 805,538 $ 645,636 Interest 14,327 8,390 9,025 Gain on disposition of assets -- -- 237 ---------- ---------- ---------- 1,325,351 813,928 654,898 ---------- ---------- ---------- Costs and expenses: Oil and gas production 425,425 361,694 390,754 General and administrative 33,284 24,166 17,997 Impairment of oil and gas properties -- -- 118,049 Depletion 77,250 140,915 327,453 ---------- ---------- ---------- 535,959 526,775 854,253 ---------- ---------- ---------- Net income (loss) $ 789,392 $ 287,153 $ (199,355) ========== ========== ========== Allocation of net income (loss): Managing general partner $ 7,894 $ 2,872 $ (1,994) ========== ========== ========== Limited partners $ 781,498 $ 284,281 $ (197,361) ========== ========== ========== Net income (loss) per limited partnership interest $ 3,138.55 $ 1,141.69 $ (792.61) ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 4 1298 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- -------- -------- Partners' capital at January 1, 1998 $ 21,549 $2,116,932 $2,138,481 Distributions (2,892) (286,347) (289,239) Net loss (1,994) (197,361) (199,355) ------ -------- -------- Partners' capital at December 31, 1998 16,663 1,633,224 1,649,887 Distributions (3,128) (309,662) (312,790) Net income 2,872 284,281 287,153 ------ -------- ------- Partners' capital at December 31, 1999 16,407 1,607,843 1,624,250 Distributions (8,030) (794,972) (803,002) Net income 7,894 781,498 789,392 ------ -------- ------- Partners' capital at December 31, 2000 $ 16,271 $1,594,369 $1,610,640 ======= ========= =========
The accompanying notes are an integral part of these financial statements. 5 1299 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 789,392 $ 287,153 $(199,355) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties -- -- 118,049 Depletion 77,250 140,915 327,453 Gain on disposition of assets -- -- (237) Changes in assets and liabilities: Accounts receivable (74,253) (50,145) 43,119 Accounts payable (6,939) 4,823 (9,123) --------- --------- --------- Net cash provided by operating activities 785,450 382,746 279,906 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (8,806) (9,360) (14,794) Proceeds from disposition of assets 467 -- 237 --------- --------- --------- Net cash used in investing activities (8,339) (9,360) (14,557) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (803,002) (312,790) (289,239) --------- --------- --------- Net increase (decrease) in cash (25,891) 60,596 (23,890) Cash at beginning of year 200,529 139,933 163,823 --------- --------- --------- Cash at end of year $ 174,638 $ 200,529 $ 139,933 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1300 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Private Investment 88, L.P. (the "Partnership") was organized in 1988 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1989. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 7 1301 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentation. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the 8 1302 Partnership recognized a non-cash impairment provision of $118,049 related to its proved oil and gas properties during 1998. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $148,226 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- ------- Net income (loss) per statements of operations $ 789,392 $ 287,153 $(199,355) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 67,335 130,790 319,019 Impairment of oil and gas properties for financial reporting purposes - - 118,049 Other, net (1,469) 221 78 --------- --------- ------- Net income per Federal income tax returns $ 855,258 $ 418,164 $ 237,791 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- ------- Development costs $ 8,806 $ 9,360 $ 14,794 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ---- ---- Proved properties: Property acquisition costs $ 76,042 $ 76,042 Completed wells and equipment 7,272,100 7,263,761 --------- --------- 7,348,142 7,339,803 Accumulated depletion (6,092,889) (6,015,639) ----------- ---------- Net oil and gas properties $ 1,255,253 $ 1,324,164 ========== ==========
9 1303 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- ----- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 164,648 $ 159,072 $ 153,460 Reimbursement of general and administrative expenses $ 29,882 $ 18,547 $ 14,864
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and the Partnership are parties to the Program agreement. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- ----------- Revenues: Proceeds from disposition of depreciable properties 9.09091% 90.90909% All other revenues 24.242425% 75.757575% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.09091% 90.90909% Operating costs, direct costs and general and administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1304
Oil and NGLs Gas (bbls) (mcf) ---------- ---------- Net proved reserves at January 1, 1998 642,625 841,260 Revisions (223,184) (203,072) Production (48,933) (61,718) ---------- ---------- Net proved reserves at December 31, 1998 370,508 576,470 Revisions 353,229 566,412 Production (48,802) (66,701) ---------- ---------- Net proved reserves at December 31, 1999 674,935 1,076,181 Revisions 142,138 (79,131) Production (46,284) (59,532) ---------- ---------- Net proved reserves at December 31, 2000 770,789 937,518 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.25 per barrel of NGLs and $7.86 per mcf of gas, discounted at 10% was approximately $5,885,000 and undiscounted was $12,796,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ----------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 24,468 $ 16,797 $ 4,079 Future production costs (11,672) (9,146) (2,814) -------- -------- -------- 12,796 7,651 1,265 10% annual discount factor (6,911) (3,791) (504) -------- -------- -------- Standardized measure of discounted future net cash flows $ 5,885 $ 3,860 $ 761 ======== ======== ========
11 1305
For the years ended December 31, --------------------------------------- 2000 1999 1998 -------- --------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (886) $ (444) $ (255) Net changes in prices and production costs 2,139 1,723 (1,538) Revisions of previous quantity estimates 898 2,410 (366) Accretion of discount 386 76 273 Changes in production rates, timing and other (512) (666) (79) -------- --------- -------- Change in present value of future net revenues 2,025 3,099 (1,965) -------- --------- -------- Balance, beginning of year 3,860 761 2,726 -------- --------- -------- Balance, end of year $ 5,885 $ 3,860 $ 761 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 55% 52% - Genesis Crude Oil, L.P. - - 63% Western Gas Resources, Inc. 4% 5% 21%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $52,075 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. The managing general partner is also responsible for 12 1306 1% of the guaranty and loan commitment fees. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $9,960,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1307 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 63% to $1,311,024 for 2000 as compared to $805,538 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 30,403 barrels of oil, 15,881 barrels of natural gas liquids ("NGLs") and 59,532 mcf of gas were sold, or 56,206 barrel of oil equivalents ("BOEs"). In 1999, 30,947 barrels of oil, 17,855 barrels of NGLs and 66,701 mcf of gas were sold, or 59,919 BOEs. 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 increased $12.44, or 73%, from $17.01 in 1999 to $29.45 in 2000. The average price received per barrel of NGLs increased $6.29, or 67%, from $9.32 in 1999 to $15.61 in 2000. The average price received per mcf of gas increased 67% from $1.69 in 1999 to $2.82 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $535,959 as compared to $526,775 in 1999, an increase of $9,184, or 2%. The increase was due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $425,425 in 2000 and $361,694 in 1999, resulting in a $63,731 increase, or 18%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 38% from $24,166 in 1999 to $33,284 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $29,882 in 2000 and $18,547 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $77,250 in 2000 compared to $140,915 in 1999, representing a decrease of $63,665, or 45%. This decrease was primarily due to a 111,058 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 25% to $805,538 from $645,636 in 1998. The increase in revenues resulted from higher average prices received. In 1999, 30,947 barrels of oil, 17,855 barrels of NGLs and 66,701 mcf of gas 1308 were sold, or 59,919 BOEs. In 1998, 33,377 barrels of oil, 15,556 barrels of NGLs and 61,718 mcf of gas were sold, or 59,219 BOEs. The average price received per barrel of oil increased $3.70, or 28%, from $13.31 in 1998 to $17.01 in 1999. The average price received per barrel of NGLs increased $2.53, or 37%, from $6.79 in 1998 to $9.32 in 1999. The average price received per mcf of gas increased 9% from $1.55 in 1998 to $1.69 in 1999. Total costs and expenses decreased in 1999 to $526,775 as compared to $854,253 in 1998, a decrease of $327,478, or 38%. The decrease was due to declines in depletion, the impairment of oil and gas properties and production costs, offset by an increase in G&A. Production costs were $361,694 in 1999 and $390,754 in 1998, resulting in a $29,060 decrease, or 7%. The decrease was due to declines in well maintenance costs and ad valorem taxes, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 34% from $17,997 in 1998 to $24,166 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $18,547 in 1999 and $14,864 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $118,049 related to its oil and gas properties during 1998. Depletion was $140,915 in 1999 compared to $327,453 in 1998, representing a decrease of $186,538, or 57%. This decrease was the result of an increase in proved reserves of 220,875 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1309 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $402,704 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $511,423, offset by increases in production costs paid of $63,731, G&A expenses paid of $9,118 and working capital of $35,870. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $578,466 to oil and gas receipts, offset by $67,043 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Proceeds recognized during 2000 of $467 were due to equipment credits received on an active property. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $803,002, of which $8,030 was distributed to the managing general partner and $794,972 to the limited partners. In 1999, cash distributions to the partners were $312,790, of which $3,128 was distributed to the managing general partner and $309,662 to the limited partners. 1310 PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 625,806 $ 598,423 $1,311,024 $ 805,538 $ 645,636 $ 940,268 $1,151,975 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 118,049 $ 791,857 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 341,263 $ 334,205 $ 789,392 $ 287,153 $ (199,355) $ (485,703) $ 480,356 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,413 $ 3,342 $ 7,894 $ 2,872 $ (1,994) $ (4,857) $ 4,804 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 337,850 $ 330,863 $ 781,498 $ 284,281 $ (197,361) $ (480,846) $ 475,552 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 1,356.83 $ 1,328.77 $ 3,138.55 $ 1,141.69 $ (792.61) $(1,931.11) $ 1,909.85 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 942.15 $ 1,408.78 $ 3,192.66 $ 1,243.62 $ 1,149.99 $ 2,376.82 $ 2,312.00 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,739,988 $1,637,019 $1,620,080 $1,640,629 $1,661,443 $2,159,160 $3,237,747 ========== ========== ========== ========== ========== ========== ==========
1311 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 89-A CONV., L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 --------- THE DATE OF THIS SUPPLEMENT IS , 2001 --------- This document contains important information specific to Parker & Parsley 89-A Conv., L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 89-A Conv., L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1312 PARKER & PARSLEY 89-A CONV., L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 2,797 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 2,993 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding $ 929 Pioneer USA(a),(b) Merger Value per $1,000 Limited Partner Investment(b),(c) $332.08 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.53 times the past four quarterly distributions including the distribution in July 2001(b),(c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $166.00 -- as of December 31, 2000(c) $158.81 Going Concern Value per $1,000 Limited Partner Investment(c),(d) $310.02 Liquidation Value per $1,000 Limited Partner Investment(c),(e) $322.33 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 149 (c),(f)
--------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2039, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1313 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1314 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 100,729 $ 49,781 Accounts receivable - oil and gas sales 39,777 57,620 ---------- ---------- Total current assets 140,506 107,401 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,151,488 2,205,981 Accumulated depletion (1,816,974) (1,860,437) ---------- ---------- Net oil and gas properties 334,514 345,544 ---------- ---------- $ 475,020 $ 452,945 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 5,953 $ 4,194 Partners' capital: Managing general partner 4,759 4,556 Limited partners (2,797 interests) 464,308 444,195 ---------- ---------- 469,067 448,751 ---------- ---------- $ 475,020 $ 452,945 ========== ==========
The financial information included as of June 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. 2 1315 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 82,496 $ 88,880 $ 192,720 $ 169,889 Interest 765 955 1,649 1,725 Gain on disposition of assets - 2,083 3,713 2,083 -------- -------- -------- -------- 83,261 91,918 198,082 173,697 -------- -------- -------- -------- Costs and expenses: Oil and gas production 40,659 40,401 74,044 71,809 General and administrative 2,476 2,816 6,388 5,257 Depletion 5,746 4,524 11,750 10,851 Abandoned property (72) - 2,263 - -------- -------- -------- -------- 48,809 47,741 94,445 87,917 -------- -------- -------- -------- Net income $ 34,452 $ 44,177 $ 103,637 $ 85,780 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 344 $ 442 $ 1,036 $ 858 ======== ======== ======== ======== Limited partners $ 34,108 $ 43,735 $ 102,601 $ 84,922 ======== ======== ======== ======== Net income per limited partnership interest $ 12.19 $ 15.63 $ 36.68 $ 30.36 ======== ======== ======== ========
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. 3 1316 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- --------- --------- Balance at January 1, 2001 $ 4,556 $ 444,195 $ 448,751 Distributions (833) (82,488) (83,321) Net income 1,036 102,601 103,637 -------- -------- -------- Balance at June 30, 2001 $ 4,759 $ 464,308 $ 469,067 ======== ======== ========
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. 4 1317 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 103,637 $ 85,780 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 11,750 10,851 Gain on disposition of assets (3,713) (2,083) Changes in assets and liabilities: Accounts receivable 17,843 (3,607) Accounts payable 5,472 3,811 --------- --------- Net cash provided by operating activities 134,989 94,752 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (720) (1,173) Proceeds from asset dispositions - 2,083 --------- --------- Net cash provided (used in) by investing activities (720) 910 --------- --------- Cash flows used in financing activities: Cash distributions to partners (83,321) (102,690) --------- --------- Net increase (decrease) in cash 50,948 (7,028) Cash at beginning of period 49,781 58,311 --------- --------- Cash at end of period $ 100,729 $ 51,283 ========= =========
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. 5 1318 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 89-A Conv., L.P. (the "Partnership") was organized in 1989 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1990. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 13% to $192,720 for the six months ended June 30, 2001 as compared to $169,889 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by 6 1319 a decrease in production. For the six months ended June 30, 2001, 3,972 barrels of oil, 1,804 barrels of natural gas liquids ("NGLs") and 11,172 mcf of gas were sold, or 7,638 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 4,172 barrels of oil, 2,251 barrels of NGLs and 10,163 mcf of gas were sold, or 8,117 BOEs. The average price received per barrel of oil increased $.21, or 1%, from $27.56 for the six months ended June 30, 2000 to $27.77 for the same period in 2001. The average price received per barrel of NGLs increased $.76, or 6%, from $13.74 during the six months ended June 30, 2000 to $14.50 for the same period in 2001. The average price received per mcf of gas increased 114% from $2.35 during the six months ended June 30, 2000 to $5.03 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 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 six months ended June 30, 2001. Gains on disposition of assets of $3,713 and $2,083 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during the period ended June 30, 2001 was due to salvage income received on one well plugged and abandoned during the current period. The gain recognized during the period ended June 30, 2000 was from equipment credits received on one fully depleted well. Abandoned property costs of $2,263 were incurred during 2001 to plug and abandon this well. Costs and Expenses: Total costs and expenses increased to $94,445 for the six months ended June 30, 2001 as compared to $87,917 for the same period in 2000, an increase of $6,528, or 7%. This increase was due to increases in abandoned property costs, production costs, general and administrative expenses ("G&A") and depletion. Production costs were $74,044 for the six months ended June 30, 2001 as compared to $71,809 for the same period in 2000, resulting in a $2,235 increase, or 3%. This increase was primarily due to higher workover expenses incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 22% from $5,257 for the six months ended June 30, 2000 to $6,388 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $11,750 for the six months ended June 30, 2001 as compared to $10,851 for the same period in 2000, an increase of $899, or 8%. This increase was the result of a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 200 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 7 1320 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 7% to $82,496 for the three months ended June 30, 2001 as compared to $88,880 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and NGLs and a decrease in production, offset by higher average prices received for gas. For the three months ended June 30, 2001, 1,795 barrels of oil, 965 barrels of NGLs and 5,567 mcf of gas were sold, or 3,688 BOEs. For the three months ended June 30, 2000, 2,094 barrels of oil, 1,179 barrels of NGLs and 5,406 mcf of gas were sold, or 4,174 BOEs. The average price received per barrel of oil decreased $.27, or 1%, from $27.65 for the three months ended June 30, 2000 to $27.38 for the three months ended June 30, 2001. The average price received per barrel of NGLs decreased $1.65, or 12%, from $13.65 during the three months ended June 30, 2000 to $12.00 for the same period in 2001. The average price received per mcf of gas increased 42% to $3.90 during the three months ended June 30, 2001 from $2.75 during the same period in 2000. Gains on disposition of assets of $2,083 were attributable to equipment credits received on one fully depleted well for the three months ended June 30, 2000. Costs and Expenses: Total costs and expenses increased to $48,809 for the three months ended June 30, 2001 as compared to $47,741 for the same period in 2000, an increase of $1,068, or 2%. This increase was due to increases in depletion and production costs, offset by a decline in G&A. Production costs were $40,659 for the three months ended June 30, 2001 and $40,401 for the same period in 2000 resulting in a $258 increase. This increase was the result of additional workover costs incurred to stimulate well production, offset by lower well maintenance costs. During this period, G&A decreased 12% from $2,816 for the three months ended June 30, 2000 to $2,476 for the same period in 2001, primarily due to a decline in audit and tax fees. Depletion was $5,746 for the three months ended June 30, 2001 as compared to $4,524 for the same period in 2000, an increase of $1,222, or 27%. This increase was the result of a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 299 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 8 1321 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $40,237 during the six months ended June 30, 2001 from the same period in 2000. This increase resulted from an increase of $22,755 in oil and gas sales receipts and a reduction in working capital of $23,111, offset by increases in production costs of $2,235, G&A expenses of $1,131 and abandoned property costs of $2,263. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $29,717 to oil and gas receipts, offset by $6,962 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to higher workover costs incurred to stimulate well production. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on various oil and gas properties. Proceeds from salvage income of $2,083 were recognized during the six months ended June 30, 2000 from equipment credits on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $83,321, of which $833 was distributed to the managing general partner and $82,488 was distributed to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $102,690, of which $1,027 was distributed to the managing general partner and $101,663 was distributed to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common 9 1322 stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1323 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1324 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 89-A Conv., L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 89-A Conv., L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 89-A Conv., L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1325 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 49,781 $ 58,311 Accounts receivable - oil and gas sales 57,620 37,719 ----------- ----------- Total current assets 107,401 96,030 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 2,205,981 2,203,522 Accumulated depletion (1,860,437) (1,832,074) ----------- ----------- Net oil and gas properties 345,544 371,448 ----------- ----------- $ 452,945 $ 467,478 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 4,194 $ 5,804 Partners' capital: Managing general partner 4,556 4,685 Limited partners (2,797 interests) 444,195 456,989 ----------- ----------- 448,751 461,674 ----------- ----------- $ 452,945 $ 467,478 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1326 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 383,529 $ 241,781 $ 196,186 Interest 4,022 2,353 2,629 Gain on disposition of assets 1,765 1,483 648 --------- --------- --------- 389,316 245,617 199,463 --------- --------- --------- Costs and expenses: Oil and gas production 135,124 118,700 121,865 General and administrative 12,370 9,612 7,006 Impairment of oil and gas properties 6,198 -- 103,108 Depletion 22,165 39,348 117,246 --------- --------- --------- 175,857 167,660 349,225 --------- --------- --------- Net income (loss) $ 213,459 $ 77,957 $(149,762) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 2,135 $ 780 $ (1,498) ========= ========= ========= Limited partners $ 211,324 $ 77,177 $(148,264) ========= ========= ========= Net income (loss) per limited partnership interest $ 75.55 $ 27.59 $ (53.01) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 1327 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- --------- --------- Partners' capital at January 1, 1998 $ 7,016 $ 687,886 $ 694,902 Distributions (806) (79,919) (80,725) Net loss (1,498) (148,264) (149,762) --------- --------- --------- Partners' capital at December 31, 1998 4,712 459,703 464,415 Distributions (807) (79,891) (80,698) Net income 780 77,177 77,957 --------- --------- --------- Partners' capital at December 31, 1999 4,685 456,989 461,674 Distributions (2,264) (224,118) (226,382) Net income 2,135 211,324 213,459 --------- --------- --------- Partners' capital at December 31, 2000 $ 4,556 $ 444,195 $ 448,751 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 5 1328 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 213,459 $ 77,957 $(149,762) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion 22,165 39,348 117,246 Impairment of oil and gas properties 6,198 -- 103,108 Gain on disposition of assets (1,765) (1,483) (648) Changes in assets and liabilities: Accounts receivable (19,901) (15,731) 6,119 Accounts payable (1,610) (17) (3,072) --------- --------- --------- Net cash provided by operating activities 218,546 100,074 72,991 --------- --------- --------- Cash flows from investing activities: (Additions) deletions to oil and gas properties (2,459) 197 (9,993) Proceeds from disposition of assets 1,765 1,483 648 --------- --------- --------- Net cash provided by (used in) investing activities (694) 1,680 (9,345) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (226,382) (80,698) (80,725) --------- --------- --------- Net increase (decrease) in cash (8,530) 21,056 (17,079) Cash at beginning of year 58,311 37,255 54,334 --------- --------- --------- Cash at end of year $ 49,781 $ 58,311 $ 37,255 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1329 PARKER & PARSLEY 89-A CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 89-A Conv., L.P. (the "Partnership") was organized in 1989 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1990. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 7 1330 Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the 8 1331 Partnership recognized a non-cash impairment provision of $6,198 and $103,108 related to its proved oil and gas properties during 2000 and 1998, respectively. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $52,175 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 213,459 $ 77,957 $(149,762) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 18,394 35,333 113,374 Impairment of oil and gas properties for financial reporting purposes 6,198 -- 103,108 Other, net (560) (1,305) 1,416 --------- --------- --------- Net income per Federal income tax returns $ 237,491 $ 111,985 $ 68,136 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- ------ Development costs $ 2,459 $ 4,107 $5,690 ========= ========= ======
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 93,966 $ 93,966 Completed wells and equipment 2,112,015 2,109,556 ----------- ----------- 2,205,981 2,203,522 Accumulated depletion (1,860,437) (1,832,074) ----------- ----------- Net oil and gas properties $ 345,544 $ 371,448 =========== ===========
9 1332 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ------- ------- ------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $52,987 $52,678 $51,730 Reimbursement of general and administrative expenses $10,994 $ 7,203 $ 5,808
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 89-A Conv., Ltd. ("EMPL"), Parker & Parsley 89-A, L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000, The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and and general and administrative expenses - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. (2) The allocation between the Partnership and Parker & Parsley 89-A, L.P. is 25.166457% and 74.833543%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1333
Oil and NGLs Gas (bbls) (mcf) ------------ -------- Net proved reserves at January 1, 1998 189,854 326,511 Revisions (83,618) (110,279) Production (14,102) (21,106) -------- -------- Net proved reserves at December 31, 1998 92,134 195,126 Revisions 106,866 158,479 Production (14,166) (20,484) -------- -------- Net proved reserves at December 31, 1999 184,834 333,121 Revisions 30,916 (27,906) Production (13,092) (20,057) -------- -------- Net proved reserves at December 31, 2000 202,658 285,158 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $12.34 per barrel of NGLs and $8.31 per mcf of gas, discounted at 10% was approximately $1,685,000 and undiscounted $3,469,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 11 1334
For the years ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and gas producing activities: Future cash inflows $ 6,835 $ 4,546 $ 1,057 Future production costs (3,367) (2,613) (750) ------- ------- ------- 3,468 1,933 307 10% annual discount factor (1,783) (891) (101) ------- ------- ------- Standardized measure of discounted future net cash flows $ 1,685 $ 1,042 $ 206 ======= ======= =======
For the years ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (248) $ (123) $ (74) Net changes in prices and production costs 765 461 (511) Revisions of estimated future development costs -- -- -- Revisions of previous quantity estimates 196 720 (138) Accretion of discount 104 20 87 Changes in production rates, timing and other (174) (242) (27) ------- ------- ------- Change in present value of future net revenues 643 836 (663) ------- ------- ------- Balance, beginning of year 1,042 206 869 ------- ------- ------- Balance, end of year $ 1,685 $ 1,042 $ 206 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 ---- ---- ---- Plains Marketing, L.P. 63% 62% - Genesis Crude Oil, L.P. - - 59% Western Gas Resources, Inc. 3% 3% 12%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $22,502 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The 12 1335 majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $2,797,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1336 PARKER & PARSLEY 89-A CONV., L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 59% to $383,529 for 2000 as compared to $241,781 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 8,466 barrels of oil, 4,626 barrels of natural gas liquids ("NGLs") and 20,057 mcf of gas were sold, or 16,435 barrel of oil equivalents ("BOEs"). In 1999, 9,190 barrels of oil, 4,976 barrels of NGLs and 20,484 mcf of gas were sold, or 17,580 BOEs. 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 increased $12.48, or 73%, from $17.11 in 1999 to $29.59 in 2000. The average price received per barrel of NGLs increased $5.88, or 62%, from $9.54 in 1999 to $15.42 in 2000. The average price received per mcf of gas increased 70% from $1.81 in 1999 to $3.07 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. During 2000 and 1999, gains on disposition of assets of $1,765 and $1,483, respectively, were attributable to credits received from equipment salvage on one fully depleted well in each year. Total costs and expenses increased in 2000 to $175,856 as compared to $167,660 in 1999, an increase of $8,196, or 5%. The increase was due to increases in production costs, the impairment of oil and gas properties and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $135,124 in 2000 and $118,700 in 1999, resulting in a $16,424 increase, or 14%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional workover and well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 29% from $9,612 in 1999 to $12,370 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $10,994 in 2000 and $7,203 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $6,198 related to its oil and gas properties during 2000. 1337 Depletion was $22,165 in 2000 as compared to $39,348 in 1999, representing a decrease of $17,183, or 44%. This decrease was primarily due to a 28,723 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 23% to $241,781 from $196,186 in 1998. The increase in revenues resulted from higher average prices received. In 1999, 9,190 barrels of oil, 4,976 barrels of natural gas liquids ("NGLs") and 20,484 mcf of gas were sold, or 17,580 barrel of oil equivalents ("BOEs"). In 1998, 9,782 barrels of oil, 4,320 barrels of NGLs and 21,106 mcf of gas were sold, or 17,620 BOEs. The average price received per barrel of oil increased $3.88, or 29%, from $13.23 in 1998 to $17.11 in 1999. The average price received per barrel of NGLs increased $2.59, or 37%, from $6.95 in 1998 to $9.54 in 1999. The average price received per mcf of gas increased 4% from $1.74 in 1998 to $1.81 in 1999. During 1999, gain on disposition of assets of $1,483 was attributable to credits received from equipment salvage on one active well. Gain on disposition of assets of $648 was attributable to credits received in 1998 from the disposal of oil and gas equipment on a well that was plugged and abandoned in a prior year. Total costs and expenses decreased in 1999 to $167,660 as compared to $349,225 in 1998, a decrease of $181,565, or 52%. The decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $118,700 in 1999 and $121,865 in 1998, resulting in a $3,165 decrease, or 3%. The decrease was due to declines in well maintenance costs and ad valorem taxes, offset by an increase in production taxes. During this period, G&A increased 37% from $7,006 in 1998 to $9,612 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $7,203 in 1999 and $5,808 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $103,108 related to its oil and gas properties during 1998. Depletion was $39,348 in 1999 compared to $117,246 in 1998, representing a decrease of $77,898, or 66%. This decrease was primarily due to an increase in proved reserves of 70,433 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1338 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $118,472 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $143,417, offset by increases in production costs paid of $16,424, G&A expenses paid of $2,758 and working capital of $5,763. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $171,552 to oil and gas receipts, offset by $28,135 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and workover and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 were related to equipment upgrades on active properties. During 2000 and 1999, proceeds from disposition of assets of $1,765 and $1,483, respectively, were from equipment credits received on an active well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $226,382, of which $2,264 was distributed to the managing general partner and $224,118 to the limited partners. In 1999, cash distributions to the partners were $80,698, of which $807 was distributed to the managing general partner and $79,891 to the limited partners. 1339 PARKER & PARSLEY 89-A CONV., L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 192,720 $ 169,889 $ 383,529 $ 241,781 $ 196,186 $ 288,192 $ 381,014 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 6,198 $ -- $ 103,108 $ 178,895 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 103,637 $ 85,780 $ 213,459 $ 77,957 $ (149,762) $ (90,749) $ 163,974 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,036 $ 858 $ 2,135 $ 780 $ (1,498) $ (907) $ 1,640 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 102,601 $ 84,922 $ 211,324 $ 77,177 $ (148,264) $ (89,842) $ 162,334 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 36.68 $ 30.36 $ 75.55 $ 27.59 $ (53.01) $ (32.12) $ 58.04 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 29.49 $ 36.35 $ 80.13 $ 28.56 $ 28.57 $ 62.59 $ 68.91 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 475,020 $ 454,379 $ 452,945 $ 467,478 $ 465,932 $ 703,794 $ 970,154 ========== ========== ========== ========== ========== ========== ==========
1340 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 89-A, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 89-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 89-A, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1341 PARKER & PARSLEY 89-A, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 8,317 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 8,902 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 2,732 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 332.67 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.49 times the past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 166.58 -- as of December 31, 2000(c) $ 159.61 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 310.60 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 322.91 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 149
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2039, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1342 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, 2001 Commission File No. 33-26097-01 PARKER & PARSLEY 89-A, L.P. ----------------------------- (Exact name of Registrant as specified in its charter) Delaware 75-2297058 --------------------------------------- --------------------- (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 / / 1343 PARKER & PARSLEY 89-A, L.P. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000........................................ 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000....................... 4 Statement of Partners' Capital for the six months ended June 30, 2001....................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000.................................... 6 Notes to Financial Statements............................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K............................ 11 Signatures.................................................. 12 2 1344 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 306,773 $ 154,704 Accounts receivable - oil and gas sales 118,280 171,226 ---------- ---------- Total current assets 425,053 325,930 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 6,397,540 6,559,576 Accumulated depletion (5,402,591) (5,531,818) ---------- ---------- Net oil and gas properties 994,949 1,027,758 ---------- ---------- $ 1,420,002 $ 1,353,688 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 20,349 $ 12,645 Partners' capital: Managing general partner 14,188 13,602 Limited partners (8,317 interests) 1,385,465 1,327,441 ---------- ---------- 1,399,653 1,341,043 ---------- ---------- $ 1,420,002 $ 1,353,688 ========== ==========
The financial information included as of June 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 1345 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 245,398 $ 264,301 $ 573,213 $ 505,131 Interest 2,350 2,930 5,026 5,297 Gain on disposition of assets - 6,194 11,040 6,194 -------- -------- ------- -------- 247,748 273,425 589,279 516,622 -------- -------- -------- -------- Costs and expenses: Oil and gas production 120,918 120,113 219,851 213,496 General and administrative 7,577 8,814 19,284 16,272 Depletion 17,132 13,489 34,950 32,289 Abandoned property - - 8,824 - -------- -------- -------- -------- 145,627 142,416 282,909 262,057 -------- -------- -------- -------- Net income $ 102,121 $ 131,009 $ 306,370 $ 254,565 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,022 $ 1,310 $ 3,064 $ 2,546 ======== ======== ======== ======== Limited partners $ 101,099 $ 129,699 $ 303,306 $ 252,019 ======== ======== ======== ======== Net income per limited partnership interest $ 12,16 $ 15.59 $ 36.47 $ 30.30 ======== ======== ======== ========
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. 4 1346 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 13,602 $1,327,441 $1,341,043 Distributions (2,478) (245,282) (247,760) Net income 3,064 303,306 306,370 --------- --------- --------- Balance at June 30, 2001 $ 14,188 $1,385,465 $1,399,653 ========= ========= =========
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. 5 1347 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, -------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 306,370 $ 254,565 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 34,950 32,289 Gain on disposition of assets (11,040) (6,194) Changes in assets and liabilities: Accounts receivable 52,946 (10,715) Accounts payable 18,744 11,899 --------- --------- Net cash provided by operating activities 401,970 281,844 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (2,141) (3,488) Proceeds from disposition of assets - 6,194 --------- --------- Net cash provided by (used in) investing activities (2,141) 2,706 --------- --------- Cash flows used in financing activities: Cash distributions to partners (247,760) (305,356) --------- --------- Net increase (decrease) in cash 152,069 (20,806) Cash at beginning of period 154,704 180,301 --------- --------- Cash at end of period $ 306,773 $ 159,495 ========= =========
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 1348 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 89-A, L.P. (the "Partnership") is a limited partnership organized in 1989 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 13% to $573,213 for the six months ended June 30, 2001 as compared to $505,131 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 11,811 barrels 7 1349 of oil, 5,378 barrels of natural gas liquids ("NGLs") and 33,232 mcf of gas were sold, or 22,728 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 12,412 barrels of oil, 6,682 barrels of NGLs and 30,228 mcf of gas were sold, or 24,132 BOEs. The average price received per barrel of oil increased $.21, or 1%, from $27.56 for the six months ended June 30, 2000 to $27.77 for the same period in 2001. The average price received per barrel of NGLs increased $.76, or 6%, from $13.74 during the six months ended June 30, 2000 to $14.50 for the same period in 2001. The average price received per mcf of gas increased 114% from $2.35 during the six months ended June 30, 2000 to $5.03 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 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 six months ended June 30, 2001. Gains on disposition of assets of $11,040 and $6,194 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during 2001 was due to salvage income received from one well plugged and abandoned during the current period. The gain recognized during 2000 was from equipment credits received on one fully depleted well. Abandoned property costs of $8,824 were incurred during 2001 to plug and abandon this well. Costs and Expenses: Total costs and expenses increased to $282,909 for the six months ended June 30, 2001 as compared to $262,057 for the same period in 2000, resulting in an increase of $20,852, or 8%. This increase was due to increases in abandoned property costs, production costs, general and administrative expenses ("G&A") and depletion. Production costs were $219,851 for the six months ended June 30, 2001 and $213,496 for the same period in 2000 resulting in a $6,355 increase, or 3%. The increase was primarily due to higher workover expenses incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 19% from $16,272 for the six months ended June 30, 2000 to $19,284 for the same period in 2001, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $34,950 for the six months ended June 30, 2001 as compared to $32,289 for the same period in 2000, an increase in depletion of $2,661, or 8%. This increase was primarily due to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decrease in oil production of 601 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 8 1350 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 7% to $245,398 for the three months ended June 30, 2001 as compared to $264,301 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil and NGLs, offset by an increase in the average price received for gas. For the three months ended June 30, 2001, 5,345 barrels of oil, 2,870 barrels of NGLs and 16,567 mcf of gas were sold, or 10,976 BOEs. For the three months ended June 30, 2000, 6,233 barrels of oil, 3,495 barrels of NGLs and 16,086 mcf of gas were sold, or 12,409 BOEs. The average price received per barrel of oil decreased $.27, or 1%, from $27.65 for the three months ended June 30, 2000 to $27.38 for the same period in 2001. The average price received per barrel of NGLs decreased $1.65, or 12%, from $13.65 during the three months ended June 30, 2000 to $12.00 for the same period in 2001. The average price received per mcf of gas increased 42% from $2.75 during the three months ended June 30, 2000 to $3.90 for the same period in 2001. Gains on disposition of assets of $6,194 were recognized during the three months ended June 30, 2000 from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $145,627 for the three months ended June 30, 2001 as compared to $142,416 for the same period in 2000, an increase of $3,211, or 2%. This increase was due to increases in depletion and production costs, offset by a decline in G&A. Production costs were $120,918 for the three months ended June 30, 2001 and $120,113 for the same period in 2000 resulting in an $805 increase. This increase was primarily due to higher workover costs incurred to stimulate well production, offset by lower well maintenance costs. During this period, G&A decreased 14% from $8,814 for the three months ended June 30, 2000 to $7,577 for the same period in 2001 due to a decline in audit and tax fees. Depletion was $17,132 for the three months ended June 30, 2001 as compared to $13,489 for the same period in 2000, an increase of $3,643, or 27%. This increase was primarily due to downward revisions to proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 888 barrels for the three months ended June 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 $120,126 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase of $67,811 in oil and gas sales receipts and a 9 1351 reduction in working capital of $70,506, offset by increases in abandoned property costs of $8,824, production costs of $6,355 and G&A expenses of $3,012. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $88,303 to oil and gas receipts, offset by $20,492 resulting from the decrease in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to higher workover expenses incurred to stimulate well production. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 were related to upgrades of oil and gas equipment on active properties. Proceeds from salvage income of $6,194 were recognized during the six months ended June 30, 2000 from equipment credits on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $247,760, of which $2,478 was distributed to the managing general partner and $245,282 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $305,356, of which $3,054 was distributed to the managing general partner and $302,302 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. 10 1352 Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 1353 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) SIGNATURES 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 89-A, L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 8, 2001 By: /s/ Rich Dealy --------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1354 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-26097-01 PARKER & PARSLEY 89-A, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2297058 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $8,212,000. As of March 8, 2001, the number of outstanding limited partnership interests was 8,317. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1355 PART I ITEM 1. BUSINESS Parker & Parsley 89-A, L.P. (the "Partnership") is a limited partnership organized in 1989 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 8,317 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 63% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and 2 1356 ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located in the Spraberry Trend area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 33 oil and gas wells. One well has been plugged and abandoned. At December 31, 2000, 32 wells were producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1357 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTEREST AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 8,317 outstanding limited partnership interests held of record by 609 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $666,425 and $237,558, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Operating results: ----------------- Oil and gas sales $1,140,280 $ 718,969 $ 583,396 $ 856,926 $1,132,944 ========== ========== ========== ========== ========== Impairment of oil and gas properties $ 18,391 $ - $ 306,826 $ 531,929 $ - ========== ========== ========== ========== ========== Net income (loss) $ 634.127 $ 231,838 $ (444,718) $ (269,363) $ 488,019 ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 6,341 $ 2,318 $ (4,447) $ (2,693) $ 4,880 ========== ========== ========== ========== ========== Limited partners $ 627,786 $ 229,520 $ (440,271) $ (266,670) $ 483,139 ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 75.48 $ 27.60 $ (52.94) $ (32.06) $ 58.09 ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 80.13 $ 28.56 $ 28.57 $ 62.59 $ 68.92 ========== ========== ========== ========== ========== At year end: ----------- Identifiable assets $1,353,688 $1,397,183 $1,392,439 $2,099,131 $2,890,740 ========== ========== ========== ========== ==========
4 1358 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 59% to $1,140,280 for 2000 as compared to $718,969 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 25,176 barrels of oil, 13,747 barrels of natural gas liquids ("NGLs") and 59,638 mcf of gas were sold, or 48,863 barrel of oil equivalents ("BOEs"). In 1999, 27,333 barrels of oil, 14,796 barrels of NGLs and 60,905 mcf of gas were sold, or 52,280 BOEs. 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 increased $12.48, or 73%, from $17.11 in 1999 to $29.59 in 2000. The average price received per barrel of NGLs increased $5.88, or 62%, from $9.54 in 1999 to $15.42 in 2000. The average price received per mcf of gas increased 70% from $1.81 in 1999 to $3.07 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gains on disposition of assets of $5,248 and $4,410 in 2000 and 1999, respectively, were attributable to equipment credits on one fully depleted well in each year. Total costs and expenses increased in 2000 to $523,646 as compared to $498,672 in 1999, an increase of $24,974, or 5%. The increase was primarily due to increases in production costs, the impairment of oil and gas properties and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $402,118 in 2000 and $352,977 in 1999, resulting in an increase of $49,141, or 14%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional workover and well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 31% from $28,521 in 1999 to $37,259 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $32,691 in 2000 and $21,420 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 1359 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $18,391 related to its oil and gas properties during 2000. Depletion was $65,878 in 2000 as compared to $117,174 in 1999, representing a decrease of $51,296, or 44%. This decrease was primarily due to a 85,285 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 23% to $718,969 from $583,396 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 27,333 barrels of oil, 14,796 barrels of NGLs and 60,905 mcf of gas were sold, or 52,280 BOEs. In 1998, 29,084 barrels of oil, 12,847 barrels of NGLs and 62,751 mcf of gas were sold, or 52,390 BOEs. The average price received per barrel of oil increased $3.88, or 29%, from $13.23 in 1998 to $17.11 in 1999. The average price received per barrel of NGLs increased $2.59, or 37%, from $6.95 in 1998 to $9.54 in 1999. The average price received per mcf of gas increased 4% from $1.74 in 1998 to $1.81 in 1999. Gain on disposition of assets of $4,410 in 1999 was attributable to equipment credits on one fully depleted well. During 1998, gain on disposition of assets of $1,926 was attributable to credits received from the disposal of oil and gas equipment on a well that was plugged and abandoned in a prior year. Total costs and expenses decreased in 1999 to $498,672 as compared to $1,038,152 in 1998, a decrease of $539,480, or 52%. The decrease was primarily due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $352,977 in 1999 and $362,377 in 1998, resulting in a $9,400 decrease, or 3%. The decrease was due to declines in ad valorem taxes and well maintenance costs, offset by an increase in workover costs incurred to stimulate well production and an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 38% from $20,635 in 1998 to $28,521 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $21,420 in 1999 and $17,270 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $306,826 related to its oil and gas properties during 1998. 6 1360 Depletion was $117,174 in 1999 compared to $348,314 in 1998. This represented a decrease of $231,140, or 66%. This decrease was primarily due to an increase in proved reserves of 209,480 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $351,738 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $426,425, offset by increases in production costs paid of $49,141, G&A expenses paid of $8,738 and working capital of $16,808. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $510,320 to oil and gas receipts, offset by $83,895 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional workover and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities during 2000 and 1999 were related to expenditures for equipment upgrades on active oil and gas properties. Proceeds from disposition of assets of $5,248 and $4,410 recognized in 2000 and 1999, respectively, were from equipment credits received on one fully depleted well in each year. Net Cash Used in Financing Activities For 2000, cash distributions to the partners were $673,157, of which $6,732 was distributed to the managing general partner and $666,425 to the limited partners. For 1999, cash distributions to the partners were $239,958, of which $2,400 was distributed to the managing general partner and $237,558 to the limited partners. 7 1361 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 89-A, L.P.: Independent Auditors' Report......................................................... 9 Balance Sheets as of December 31, 2000 and 1999...................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 13 Notes to Financial Statements........................................................ 14
8 1362 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 89-A, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 89-A, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 89-A, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 1363 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 154,704 $ 180,301 Accounts receivable - oil and gas sales 171,226 112,165 ----------- ----------- Total current assets 325,930 292,466 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 6,559,576 6,552,266 Accumulated depletion (5,531,818) (5,447,549) ----------- ----------- Net oil and gas properties 1,027,758 1,104,717 ----------- ----------- $ 1,353,688 $ 1,397,183 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 12,645 $ 17,110 Partners' capital: Managing general partner 13,602 13,993 Limited partners (8,317 interests) 1,327,441 1,366,080 ----------- ----------- 1,341,043 1,380,073 ----------- ----------- $ 1,353,688 $ 1,397,183 =========== ===========
The accompanying notes are an integral part of these financial statements. 10 1364 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ---------- ---------- ----------- Revenues: Oil and gas $1,140,280 $ 718,969 $ 583,396 Interest 12,245 7,131 8,112 Gain on disposition of assets 5,248 4,410 1,926 ---------- ---------- ----------- 1,157,773 730,510 593,434 ---------- ---------- ----------- Costs and expenses: Oil and gas production 402,118 352,977 362,377 General and administrative 37,259 28,521 20,635 Impairment of oil and gas properties 18,391 - 306,826 Depletion 65,878 117,174 348,314 ---------- ---------- ----------- 523,646 498,672 1,038,152 ---------- ---------- ----------- Net income (loss) $ 634,127 $ 231,838 $ (444,718) ========== ========== =========== Allocation of net income (loss): Managing general partner $ 6,341 $ 2,318 $ (4,447) ========== ========== =========== Limited partners $ 627,786 $ 229,520 $ (440,271) ========== ========== =========== Net income (loss) per limited partnership interest $ 75.48 $ 27.60 $ (52.94) ========== ========== ===========
The accompanying notes are an integral part of these financial statements. 11 1365 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------- ----------- ----------- Partners' capital at January 1, 1998 $ 20,922 $ 2,052,031 $ 2,072,953 Distributions (2,400) (237,642) (240,042) Net loss (4,447) (440,271) (444,718) -------- ----------- ----------- Partners' capital at December 31, 1998 14,075 1,374,118 1,388,193 Distributions (2,400) (237,558) (239,958) Net income 2,318 229,520 231,838 -------- ----------- ----------- Partners' capital at December 31, 1999 13,993 1,366,080 1,380,073 Distributions (6,732) (666,425) (673,157) Net income 6,341 627,786 634,127 -------- ----------- ----------- Partners' capital at December 31, 2000 $ 13,602 $ 1,327,441 $ 1,341,043 ======== =========== ===========
The accompanying notes are an integral part of these statements. 12 1366 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 634,127 $ 231,838 $(444,718) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 18,391 - 306,826 Depletion 65,878 117,174 348,314 Gain on disposition of assets (5,248) (4,410) (1,926) Changes in assets and liabilities: Accounts receivable (59,061) (46,785) 18,178 Accounts payable (4,465) 67 (9,135) --------- --------- --------- Net cash provided by operating activities 649,622 297,884 217,539 --------- --------- --------- Cash flows from investing activities: (Additions) deletions to oil and gas properties (7,310) 584 (29,716) Proceeds from disposition of assets 5,248 4,410 1,926 --------- --------- --------- Net cash provided by (used in) investing activities (2,062) 4,994 (27,790) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (673,157) (239,958) (240,042) --------- --------- --------- Net increase (decrease) in cash (25,597) 62,920 (50,293) Cash at beginning of year 180,301 117,381 167,674 --------- --------- --------- Cash at end of year $ 154,704 $ 180,301 $ 117,381 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 13 1367 PARKER & PARSLEY 89-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 89-A, L.P. (the "Partnership") is a limited partnership organized in 1989 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 1368 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $18,391 and $306,826 related to its proved oil and gas properties during 2000 and 1998, respectively. NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $155,457 greater than the tax basis at December 31, 2000. 15 1369 The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 634,127 $ 231,838 $(444,718) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 54,665 105,234 336,801 Impairment of oil and gas properties for financial reporting purposes 18,391 - 306,826 Salvage income - - - Other, net (1,709) (3,610) 3,948 --------- --------- --------- Net income per Federal income tax returns $ 705,474 $ 333,462 $ 202,857 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the net costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- -------- -------- Development costs $ 7,310 $ 12,213 $ 16,919 ========= ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 279,410 $ 279,410 Completed wells and equipment 6,280,166 6,272,856 ----------- ----------- 6,559,576 6,552,266 Accumulated depletion (5,531,818) (5,447,549) ----------- ----------- Net oil and gas properties $ 1,027,758 $ 1,104,717 =========== ===========
16 1370 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 157,560 $ 156,639 $ 153,822 Reimbursement of general and administrative expenses $ 32,691 $ 21,420 $ 17,270
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 89-A Conv., Ltd. ("EMPL"), Parker & Parsley 89-A Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 105 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 89-A Conv., L.P. is 74.833543% and 25.166457%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------ -------- Net proved reserves at January 1, 1998 564,653 971,094 Revisions (248,699) (328,006) Production (41,931) (62,751) -------- -------- Net proved reserves at December 31, 1998 274,023 580,337 Revisions 317,834 471,328 Production (42,129) (60,905) -------- --------
17 1371 Net proved reserves at December 31, 1999 549,728 990,760 Revisions 91,729 (83,266) Production (38,923) (59,638) -------- -------- Net proved reserves at December 31, 2000 602,534 847,856 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $12.34 per barrel of NGLs and $8.31 per mcf of gas, discounted at 10% was approximately $5,009,000 and undiscounted was $10,314,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ----------------------------------- 2000 1999 1998 -------- -------- ------- (in thousands) Oil and gas producing activities: Future cash inflows $ 20,322 $ 13,520 $ 3,146 Future production costs (10,008) (7,771) (2,232) -------- -------- ------- 10,314 5,749 914 10% annual discount factor (5,305) (2,649) (301) -------- -------- ------- Standardized measure of discounted future net cash flows $ 5,009 $ 3,100 $ 613 ======== ======== =======
18 1372
For the years ended December 31, ---------------------------------- 2000 1999 1998 (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (738) $ (366) $ (221) Net changes in prices and production costs 2,277 1,372 (1,520) Revisions of previous quantity estimates 582 2,141 (409) Accretion of discount 310 62 259 Changes in production rates, timing and other (522) (722) (81) ------- ------- ------- Change in present value of future net revenues 1,909 2,487 (1,972) ------- ------- ------- Balance, beginning of year 3,100 613 2,585 ------- ------- ------- Balance, end of year $ 5,009 $ 3,100 $ 613 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- ------- Plains Marketing, L.P. 63% 62% - Genesis Crude Oil, L.P. - - 59% Western Gas Resources, Inc. 3% 3% 12%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $66,937 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. 19 1373 Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $8,317,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 1374 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 45 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 1375 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B.S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 1376 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 15% during the first three years and approximately 20% after three years of its operating and general and administrative expenses. In return, they are allocated approximately 15% during the first three years and approximately 20% after three years of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 105 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. 23 1377 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- --------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $157,560 $ 156,639 $153,822 Reimbursement of general and administrative expenses $ 32,691 $ 21,420 $ 17,270
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 1378 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 1379 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 89-A, L.P. Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 27, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 27, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 27, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 27, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
26 1380 PARKER & PARSLEY 89-A, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Form of Agreement of Limited Partnership - of Parker & Parsley 89-A, L.P. incorporated by reference to Exhibit A of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of Limited Partner Subscription Agreement - incorporated by reference to Exhibit C of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of General Partner Subscription Agreement - incorporated by reference to Exhibit D of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Power of Attorney incorporated by reference - to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 10(b) Form of Development Drilling Program - Agreement incorporated by reference to Exhibit B of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097)
27 1381 PARKER & PARSLEY 89-A, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 573,213 $ 505,131 $1,140,280 $ 718,969 $ 583,396 $ 856,926 $1,132,944 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 18,391 $ -- $ 306,826 $ 531,929 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 306,370 $ 254,565 $ 634,127 $ 231,838 $ (444,718) $ (269,363) $ 488,019 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,064 $ 2,546 $ 6,341 $ 2,318 $ (4,447) $ (2,693) $ 4,880 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 303,306 $ 252,019 $ 627,786 $ 229,520 $ (440,271) $ (266,670) $ 483,139 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 36.47 $ 30.30 $ 75.48 $ 27.60 $ (52.94) $ (32.06) $ 58.09 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 29.49 $ 36.35 $ 80.13 $ 28.56 $ 28.57 $ 62.59 $ 68.92 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,420,002 $1,358,291 $1,353,688 $1,397,183 $1,392,439 $2,099,131 $2,890,740 ========== ========== ========== ========== ========== ========== ==========
1382 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 89-B CONV., L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 89-B Conv., L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 89-B Conv., L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1383 PARKER & PARSLEY 89-B CONV., L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 6,307 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 5,875 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,761 USA(a),(b) Merger Value per $1,000 Limited Partner Investment(b),(c) $ 280.15 Merger Value per $1,000 Limited Partner Investment as a Multiple of 3.22 times Distributions for the past four quarterly distributions including the distribution in July 2001(b),(c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 177.67 -- as of December 31, 2000(c) $ 171.00 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 259.26 Liquidation Value per $1,000 Limited Partner Investment(c),(e) $ 271.96 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 158 (c),(f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2039, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1384 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1385 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 218,824 $ 94,922 Accounts receivable - oil and gas sales 90,911 134,431 ---------- ---------- Total current assets 309,735 229,353 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,317,534 5,314,971 Accumulated depletion (4,479,159) (4,443,011) ---------- ---------- Net oil and gas properties 838,375 871,960 ---------- ---------- $ 1,148,110 $ 1,101,313 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 16,108 $ 11,787 Partners' capital: Managing general partner 11,466 11,042 Limited partners (6,307 interests) 1,120,536 1,078,484 ---------- ---------- 1,132,002 1,089,526 ---------- ---------- $ 1,148,110 $ 1,101,313 ========== ==========
The financial information included as of June 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. 2 1386 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 189,915 $ 210,761 $ 432,217 $ 409,534 Interest 1,589 2,124 3,372 3,655 -------- -------- -------- -------- 191,504 212,885 435,589 413,189 -------- -------- -------- -------- Costs and expenses: Oil and gas production 88,828 81,982 174,038 164,199 General and administrative 5,698 6,635 14,077 12,598 Depletion 17,560 16,551 36,148 31,840 -------- -------- -------- -------- 112,086 105,168 224,263 208,637 -------- -------- -------- -------- Net income $ 79,418 $ 107,717 $ 211,326 $ 204,552 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 794 $ 1,078 $ 2,113 $ 2,046 ======== ======== ======== ======== Limited partners $ 78,624 $ 106,639 $ 209,213 $ 202,506 ======== ======== ======== ======== Net income per limited partnership interest $ 12.46 $ 16.91 $ 33.17 $ 32.11 ======== ======== ======== ========
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. 3 1387 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 11,042 $1,078,484 $1,089,526 Distributions (1,689) (167,161) (168,850) Net income 2,113 209,213 211,326 -------- --------- --------- Balance at June 30, 2001 $ 11,466 $1,120,536 $1,132,002 ======== ========= =========
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. 4 1388 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 211,326 $ 204,552 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 36,148 31,840 Changes in assets and liabilities: Accounts receivable 43,520 (27,521) Accounts payable 4,321 9,590 -------- -------- Net cash provided by operating activities 295,315 218,461 -------- -------- Cash flows used in investing activities: Additions to oil and gas properties (2,563) (7,505) Cash flows used in financing activities: Cash distributions to partners (168,850) (211,637) -------- -------- Net increase (decrease) in cash 123,902 (681) Cash at beginning of period 94,922 116,810 -------- -------- Cash at end of period $ 218,824 $ 116,129 ======== ========
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. 5 1389 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 89-B Conv., L.P. (the "Partnership") was organized as a general partnership in 1989 under the laws of the State of Texas and was converted to a Delaware limited partnership on May 30, 1990. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 6% to $432,217 for the six months ended June 30, 2001 as compared to $409,534 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 9,172 barrels 6 1390 of oil, 3,753 barrels of natural gas liquids ("NGLs") and 23,283 mcf of gas were sold, or 16,806 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 10,168 barrels of oil, 5,936 barrels of NGLs and 21,901 mcf of gas were sold, or 19,754 BOEs. The average price received per barrel of oil increased $.25, or 1%, from $27.44 for the six months ended June 30, 2000 to $27.69 for the same period in 2001. The average price received per barrel of NGLs increased $3.09, or 22%, from $13.93 during the six months ended June 30, 2000 to $17.02 for the same period in 2001. The average price received per mcf of gas increased 125% from $2.18 during the six months ended June 30, 2000 to $4.91 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $224,263 for the six months ended June 30, 2001 as compared to $208,637 for the same period in 2000, an increase of $15,626, or 7%. This increase was due to an increase in production costs, depletion and general and administrative expenses ("G&A"). Production costs were $174,038 for the six months ended June 30, 2001 and $164,199 for the same period in 2000, resulting in a $9,839 increase, or 6%. This increase was due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 12%, from $12,598 for the six months ended June 30, 2000 to $14,077 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $36,148 for the six months ended June 30, 2001 as compared to $31,840 for the same period in 2000, an increase of $4,308, or 14%. This increase was due to a reduction in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decline in oil production of 996 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 10% to $189,915 for the three months ended June 30, 2001 as compared to $210,761 for the same period in 2000. The decrease in revenues resulted from a decrease in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 4,471 barrels of oil, 1,969 barrels of NGLs and 10,803 mcf of gas were sold, or 8,241 BOEs. For the 7 1391 three months ended June 30, 2000, 5,131 barrels of oil, 3,114 barrels of NGLs and 10,684 mcf of gas were sold, or 10,026 BOEs. The average price received per barrel of oil decreased $.78, or 3%, from $27.73 for the three months ended June 30, 2000 to $26.95 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.76, or 13%, from $13.12 during the three months ended June 30, 2000 to $14.88 for the same period in 2001. The average price received per mcf of gas increased 44% to $3.72 during the three months ended June 30, 2001 from $2.58 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $112,086 for the three months ended June 30, 2001 as compared to $105,168 for the same period in 2000, an increase of $6,918, or 7%. This increase was due to increases in production costs and depletion, offset by a decrease in G&A. Production costs were $88,828 for the three months ended June 30, 2001 and $81,982 for the same period in 2000, resulting in a $6,846 increase, or 8%. The increase was due to an increase in well maintenance and workover costs incurred to stimulate well production, offset by lower production taxes due to lower oil prices. During this period, G&A decreased 14%, from $6,635 for the three months ended June 30, 2000 to $5,698 for the same period in 2001, primarily due to a lower allocation 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 a decrease in audit and tax fees. Depletion was $17,560 for the three months ended June 30, 2001 as compared to $16,551 for the same period in 2000, an increase of $1,009, or 6%. This increase was attributable to a decrease in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decline in oil production of 660 barrels for the three months ended June 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 $76,854 during the six months ended June 30, 2001 from the same period in 2000. This increase was due to an increase of $22,400 in oil and gas sales receipts and a reduction in working capital of $65,772, offset by increases in production costs of $9,839 and G&A expenses of $1,479. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $80,365 to oil and gas receipts, offset by $57,965 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was due to additional well maintenance and workover costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The increase in G&A was due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. 8 1392 Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $168,850, of which $1,689 was distributed to the managing general partner and $167,161 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $211,637, of which $2,116 was distributed to the managing general partner and $209,521 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 9 1393 ---------- (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. 10 1394 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1395 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 89-B Conv., L.P. (A Delaware Limited Partnership): We have audited the accompanying balance sheets of Parker & Parsley 89-B Conv., L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 89-B Conv., L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1396 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 -------- --------- ASSETS ------ Current assets: Cash $ 94,922 $ 116,810 Accounts receivable - oil and gas sales 134,431 73,499 ---------- ---------- Total current assets 229,353 190,309 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,314,971 5,304,537 Accumulated depletion (4,443,011) (4,349,082) ---------- ---------- Net oil and gas properties 871,960 955,455 ---------- ---------- $ 1,101,313 $ 1,145,764 ========== ========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 11,787 $ 15,267 Partners' capital: Managing general partner 11,042 11,451 Limited partners (6,307 interests) 1,078,484 1,119,046 ---------- ---------- 1,089,526 1,130,497 ---------- ---------- $ 1,101,313 $ 1,145,764 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 1397 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ------- -------- ------- Revenues: Oil and gas $ 873,058 $ 542,232 $ 471,148 Interest 8,377 4,914 5,410 Gain on disposition of assets - 354 108 ------- -------- ------- 881,435 547,500 476,666 ------- -------- ------- Costs and expenses: Oil and gas production 326,082 305,897 322,354 General and administrative 28,155 20,352 16,076 Impairment of oil and gas properties 27,748 - 262,396 Depletion 66,181 99,538 241,875 ------- -------- ------- 448,166 425,787 842,701 ------- -------- ------- Net income (loss) $ 433,269 $ 121,713 $(366,035) ======== ========= ======== Allocation of net income (loss): Managing general partner $ 4,333 $ 1,217 $ (3,660) ======== ========= ======== Limited partners $ 428,936 $ 120,496 $(362,375) ======== ========= ======== Net income (loss) per limited partnership interest $ 68.01 $ 19.11 $ (57.46) ======== ========= ========
The accompanying notes are an integral part of these financial statements. 4 1398 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ------------- -------------- ----------- Partners' capital at January 1, 1998 $ 17,202 $1,688,386 $1,705,588 Distributions (1,765) (174,700) (176,465) Net loss (3,660) (362,375) (366,035) ------ -------- -------- Partners' capital at December 31, 1998 11,777 1,151,311 1,163,088 Distributions (1,543) (152,761) (154,304) Net income 1,217 120,496 121,713 ------ -------- ------- Partners' capital at December 31, 1999 11,451 1,119,046 1,130,497 Distributions (4,742) (469,498) (474,240) Net income 4,333 428,936 433,269 ------ -------- ------- Partners' capital at December 31, 2000 $ 11,042 $1,078,484 $1,089,526 ======= ========= =========
The accompanying notes are an integral part of these financial statements. 5 1399 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------- ------- ------- Cash flows from operations: Net income (loss) $ 433,269 $ 121,713 $(366,035) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 27,748 - 262,396 Depletion 66,181 99,538 241,875 Gain on disposition of assets - (354) (108) Changes in assets and liabilities: Accounts receivable (60,932) (20,669) 43,290 Accounts payable (3,480) 2,834 (6,986) ------- ------- ------- Net cash provided by operating activities 462,786 203,062 174,432 ------- ------- ------- Cash flows from investing activities: Additions to oil and gas properties (10,434) (7,556) (10,801) Proceeds from asset dispositions - 354 108 ------- ------- ------- Net cash used in investing activities (10,434) (7,202) (10,693) ------- ------- ------- Cash flows used in financing activities: Cash distributions to partners (474,240) (154,304) (176,465) -------- -------- -------- Net increase (decrease) in cash (21,888) 41,556 (12,726) Cash at beginning of year 116,810 75,254 87,980 ------- ------- ------- Cash at end of year $ 94,922 $ 116,810 $ 75,254 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 6 1400 PARKER & PARSLEY 89-B CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 89-B Conv., L.P. (the "Partnership") was organized as a general partnership in 1989 under the laws of the State of Texas and was converted to a Delaware limited partnership on May 30, 1990. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1401 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $27,748 and $262,396 related to its proved oil and gas properties during 2000 and 1998, respectively. 8 1402 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $191,325 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ------- ------- ------- Net income (loss) per statements of operations $ 433,269 $ 121,713 $(366,035) Impairment of oil and gas properties for financial reporting purposes 27,748 - 262,396 Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 57,991 91,381 226,609 Other, net (1,014) (2,514) 2,725 ------- ------- ------- Net income per Federal income tax returns $ 517,994 $ 210,580 $ 125,695 ======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------- -------- -------- Development costs $ 10,434 $ 7,556 $ 10,801 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 --------- --------- Proved properties: Property acquisition costs $ 171,441 $ 171,441 Completed wells and equipment 5,143,530 5,133,096 ---------- ---------- 5,314,971 5,304,537 Accumulated depletion (4,443,011) (4,349,082) ----------- ---------- Net oil and gas properties $ 871,960 $ 955,455 ========== ==========
9 1403 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 133,513 $ 129,059 $ 124,312 Reimbursement of general and administrative expenses $ 25,658 $ 16,168 $ 14,082
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and P&P Employees 89-B Conv., L.P. ("EMPL"), Parker & Parsley 89-B, L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 20 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 89-B, L.P. is 47.578455% and 52.421545%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1404
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 471,441 734,987 Revisions (202,204) (246,962) Production (35,481) (52,345) ---------- ---------- Net proved reserves at December 31, 1998 233,756 435,680 Revisions 267,905 413,961 Production (32,585) (46,681) ---------- ---------- Net proved reserves at December 31, 1999 469,076 802,960 Revisions 1,942 (157,459) Production (30,959) (42,179) ---------- ---------- Net proved reserves at December 31, 2000 440,059 603,322 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.35 per barrel of NGLs and $7.90 per mcf of gas, discounted at 10% was approximately $3,414,000 and undiscounted was $6,785,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (in thousands) Oil and gas producing activities: Future cash inflows $ 14,354 $ 11,715 $ 2,608 Future production costs (7,569) (6,914) (1,962) -------- -------- -------- 6,785 4,801 646 10% annual discount factor (3,371) (2,230) (224) -------- -------- -------- Standardized measure of discounted future net cash flows $ 3,414 $ 2,571 $ 422 ========= ======== =========
11 1405
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (547) $ (236) $ (149) Net changes in prices and production costs 1,522 1,145 (1,146) Revisions of previous quantity estimates (163) 1,753 (282) Accretion of discount 257 42 189 Changes in production rates, timing and other (226) (555) (76) -------- --------- -------- Change in present value of future net revenues 843 2,149 (1,464) -------- --------- -------- Balance, beginning of year 2,571 422 1,886 -------- --------- -------- Balance, end of year $ 3,414 $ 2,571 $ 422 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 55% 51% - Genesis Crude Oil, L.P. - - 59% Western Gas Resources, Inc. 4% 6% 26%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $37,745 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating, general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of undistributed profits. 12 1406 Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $6,307,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1407 PARKER & PARSLEY 89-B CONV., L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 61% to $873,058 for 2000 as compared to $542,232 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 19,708 barrels of oil, 11,251 barrels of natural gas liquids ("NGLs") and 42,179 mcf of gas were sold, or 37,989 barrel of oil equivalents ("BOEs"). In 1999, 20,322 barrels of oil, 12,263 barrels of NGLs and 46,681 mcf of gas were sold, or 40,365 BOEs. 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 increased $12.25, or 72%, from $16.96 in 1999 to $29.21 in 2000. The average price received per barrel of NGLs increased $5.99, or 63%, from $9.57 in 1999 to $15.56 in 2000. The average price received per mcf of gas increased 69% from $1.72 in 1999 to $2.90 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $448,166 as compared to $425,787 in 1999, an increase of $22,379, or 5%. The increase was due to increases in the impairment of oil and gas properties, production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $326,082 in 2000 and $305,897 in 1999, resulting in a $20,185 increase, or 7%. The increase was primarily due to higher production taxes associated with higher oil and gas prices, offset by a decline in well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 38% from $20,352 in 1999 to $28,155 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $25,658 in 2000 and $16,168 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partners. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $27,748 related to its oil and gas properties during 2000. Depletion was $66,181 in 2000 as compared to $99,538 in 1999, representing a decrease of $33,357, or 34%. This decrease was primarily due to an 8,572 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1408 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 15% to $542,232 from $471,148 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 20,322 barrels of oil, 12,263 barrels of NGLs and 46,681 mcf of gas were sold, or 40,365 BOEs. In 1998, 22,378 barrels of oil, 13,103 barrels of NGLs and 52,345 mcf of gas were sold, or 44,205 BOEs. The average price received per barrel of oil increased $3.70, or 28%, from $13.26 in 1998 to $16.96 in 1999. The average price received per barrel of NGLs increased $2.63, or 38%, from $6.94 in 1998 to $9.57 in 1999. The average price received per mcf of gas increased 8% from $1.60 in 1998 to $1.72 in 1999. Total costs and expenses decreased in 1999 to $425,787 as compared to $842,701 in 1998, a decrease of $416,914, or 49%. The decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $305,897 in 1999 and $322,354 in 1998, resulting in a $16,457 decrease, or 5%. The decrease was due to declines in ad valorem taxes and well maintenance costs. During this period, G&A increased 27% from $16,076 in 1998 to $20,352 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $16,168 in 1999 and $14,082 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $262,396 related to its oil and gas properties during 1998. Depletion was $99,538 in 1999 compared to $241,875 in 1998, representing a decrease of $142,337, or 59%. This decrease was the result of an increase in proved reserves of 173,770 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $259,724 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $334,289, offset by increases in production costs paid of $20,185, G&A expenses paid of $7,803 and working capital of $46,577. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $381,025 to oil and gas receipts, offset by $46,736 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices, offset by a decline in well maintenance costs. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited 1409 to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $474,240, of which $4,742 was distributed to the managing general partner and $469,498 to the limited partners. In 1999, cash distributions to the partners were $154,304, of which $1,543 was distributed to the managing general partner and $152,761 to the limited partners. 1410 PARKER & PARSLEY 89-B CONV., L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 432,217 $ 409,534 $ 873,058 $ 542,232 $ 471,148 $ 718,293 $ 849,156 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 27,748 $ -- $ 262,396 $ 330,848 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 211,326 $ 204,552 $ 433,269 $ 121,713 $ (366,035) $ (122,936) $ 342,846 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 2,113 $ 2,046 $ 4,333 $ 1,217 $ (3,660) $ (1,229) $ 3,428 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 209,213 $ 202,506 $ 428,936 $ 120,496 $ (362,375) $ (121,707) $ 339,418 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 33.17 $ 32.11 $ 68.01 $ 19.11 $ (57.46) $ (19.30) $ 53.82 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 26.50 $ 33.22 $ 74.44 $ 24.22 $ 27.70 $ 62.96 $ 61.29 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,148,110 $1,148,269 $1,101,313 $1,145,764 $1,175,521 $1,725,007 $2,246,482 ========== ========== ========== ========== ========== ========== ==========
1411 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 89-B, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 -------------------- THE DATE OF THIS SUPPLEMENT IS , 2001 -------------------- This document contains important information specific to Parker & Parsley 89-B, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 89-B, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1412 PARKER & PARSLEY 89-B, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 6,949 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 6,473 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,924 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 279.80 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.19 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 177.79 -- as of December 31, 2000 (c) $ 171.15 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 258.93 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 271.62 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial $ 158 Investment (c), (f)
----------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2039, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1413 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1414 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ------------ (Unaudited) ASSETS Current assets: Cash $ 241,922 $ 105,641 Accounts receivable - oil and gas sales 100,082 148,020 ----------- ----------- Total current assets 342,004 253,661 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,858,627 5,855,803 Accumulated depletion (4,934,712) (4,894,889) ----------- ----------- Net oil and gas properties 923,915 960,914 ----------- ----------- $ 1,265,919 $ 1,214,575 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 17,756 $ 12,985 Partners' capital: Managing general partner 12,722 12,256 Limited partners (6,949 interests) 1,235,441 1,189,334 ----------- ----------- 1,248,163 1,201,590 ----------- ----------- $ 1,265,919 $ 1,214,575 =========== ===========
The financial information included as of June 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. 2 1415 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Revenues: Oil and gas $209,198 $232,094 $475,940 $450,799 Interest 1,766 2,342 3,723 4,042 -------- -------- -------- -------- 210,964 234,436 479,663 454,841 -------- -------- -------- -------- Costs and expenses: Oil and gas production 97,874 90,344 191,734 180,904 General and administrative 6,278 7,307 15,495 13,868 Depletion 19,323 18,232 39,823 35,077 -------- -------- -------- -------- 123,475 115,883 247,052 229,849 -------- -------- -------- -------- Net income $ 87,489 $118,553 $232,611 $224,992 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 875 $ 1,186 $ 2,326 $ 2,250 ======== ======== ======== ======== Limited partners $ 86,614 $117,367 $230,285 $222,742 ======== ======== ======== ======== Net income per limited partnership interest $ 12.46 $ 16.89 $ 33.14 $ 32.05 ======== ======== ======== ========
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. 3 1416 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ----------- ----------- ----------- Balance at January 1, 2001 $ 12,256 $ 1,189,334 $ 1,201,590 Distributions (1,860) (184,178) (186,038) Net income 2,326 230,285 232,611 ----------- ----------- ----------- Balance at June 30, 2001 $ 12,722 $ 1,235,441 $ 1,248,163 =========== =========== ===========
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. 4 1417 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 232,611 $ 224,992 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 39,823 35,077 Changes in assets and liabilities: Accounts receivable 47,938 (30,214) Accounts payable 4,771 10,563 --------- --------- Net cash provided by operating activities 325,143 240,418 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (2,824) (8,268) Cash flows used in financing activities: Cash distributions to partners (186,038) (233,181) --------- --------- Net increase (decrease) in cash 136,281 (1,031) Cash at beginning of period 105,641 130,083 --------- --------- Cash at end of period $ 241,922 $ 129,052 ========= =========
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. 5 1418 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 89-B, L.P. (the "Partnership") is a limited partnership organized in 1989 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 6% to $475,940 for the six months ended June 30, 2001 as compared to $450,799 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 10,095 barrels 6 1419 of oil, 4,141 barrels of natural gas liquids ("NGLs") and 25,638 mcf of gas were sold, or 18,509 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 11,198 barrels of oil, 6,538 barrels of NGLs and 24,114 mcf of gas were sold, or 21,755 BOEs. The average price received per barrel of oil increased $.25, or 1%, from $27.44 for the six months ended June 30, 2000 to $27.69 for the same period in 2001. The average price received per barrel of NGLs increased $3.09, or 22%, from $13.93 during the six months ended June 30, 2000 to $17.02 for the same period in 2001. The average price received per mcf of gas increased 125% from $2.18 during the six months ended June 30, 2000 to $4.91 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 continue in the foreseeable future. The Partnership may therefore sell its future oil and gas production at average prices lower or higher than those received during the six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $247,052 for the six months ended June 30, 2001 as compared to $229,849 for the same period in 2000, an increase of $17,203, or 7%. This increase was due to an increase in production costs, depletion and general and administrative expenses ("G&A"). Production costs were $191,734 for the six months ended June 30, 2001 and $180,904 for the same period in 2000, resulting in a $10,830, or 6%, increase. This increase was the result of additional well maintenance and workover costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 12%, from $13,868 for the six months ended June 30, 2000 to $15,495 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $39,823 for the six months ended June 30, 2001 as compared to $35,077 for the same period in 2000, an increase of $4,746, or 14%. This increase was due to a decrease in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decline in oil production of 1,103 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 10% to $209,198 for the three months ended June 30, 2001 as compared to $232,094 for the same period in 2000. The decrease in revenues resulted from a decrease in production and lower average prices received for oil, offset by increases in the average prices 7 1420 received for gas and NGLs. For the three months ended June 30, 2001, 4,922 barrels of oil, 2,174 barrels of NGLs and 11,900 mcf of gas were sold, or 9,079 BOEs. For the three months ended June 30, 2000, 5,654 barrels of oil, 3,426 barrels of NGLs and 11,762 mcf of gas were sold, or 11,040 BOEs. The average price received per barrel of oil decreased $.78, or 3%, from $27.73 for the three months ended June 30, 2000 to $26.95 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.76, or 13%, from $13.12 during the three months ended June 30, 2000 to $14.88 for the same period in 2001. The average price received per mcf of gas increased 44% to $3.72 during the three months ended June 30, 2001 from $2.58 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $123,475 for the three months ended June 30, 2001 as compared to $115,883 for the same period in 2000, an increase of $7,592, or 7%. This increase was due to increases in production costs and depletion, offset by a decrease in G&A. Production costs were $97,874 for the three months ended June 30, 2001 and $90,344 for the same period in 2000, resulting in a $7,530 increase, or 8%. The increase was due to an increase in well maintenance and workover costs incurred to stimulate well production, offset by a decrease in production taxes due to lower oil prices. During this period, G&A decreased 14%, from $7,307 for the three months ended June 30, 2000 to $6,278 for the same period in 2001, primarily due to a lower allocation 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 a decrease in audit and tax fees. Depletion was $19,323 for the three months ended June 30, 2001 as compared to $18,232 for the same period in 2000, an increase of $1,091, or 6%. This increase was attributable to a decrease in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices, offset by a decrease in oil production of 732 barrels for the three months ended June 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 $84,725 during the six months ended June 30, 2001 from the same period in 2000. This increase was due to an increase of $24,822 in oil and gas sales receipts and a reduction in working capital of $72,360, offset by increases in production costs of $10,830 and G&A expenses of $1,627. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $88,680 to oil and gas receipts, offset by $63,858 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover 8 1421 costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $186,038, of which $1,860 was distributed to the managing general partner and $184,178 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $233,181, of which $2,332 was distributed to the managing general partner and $230,849 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, because it contains important information about the proposed mergers, including information about the direct and indirect interests of Pioneer USA and Pioneer 9 1422 in the mergers. The limited partners may also obtain the preliminary and (when filed) 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. 10 1423 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1424 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 89-B, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 89-B, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 89-B, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1425 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 105,641 $ 130,083 Accounts receivable - oil and gas sales 148,020 80,988 ----------- ----------- Total current assets 253,661 211,071 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,855,803 5,844,308 Accumulated depletion (4,894,889) (4,791,400) ----------- ----------- Net oil and gas properties 960,914 1,052,908 ----------- ----------- $ 1,214,575 $ 1,263,979 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 12,985 $ 16,819 Partners' capital: Managing general partner 12,256 12,712 Limited partners (6,949 interests) 1,189,334 1,234,448 ----------- ----------- 1,201,590 1,247,160 ----------- ----------- $ 1,214,575 $ 1,263,979 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1426 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 961,197 $ 597,130 $ 518,801 Interest 9,481 5,469 6,043 Gain on disposition of assets -- 390 119 --------- --------- --------- 970,678 602,989 524,963 --------- --------- --------- Costs and expenses: Oil and gas production 359,243 337,025 355,148 General and administrative 31,002 22,369 17,625 Impairment of oil and gas properties 30,586 -- 289,124 Depletion 72,903 109,755 266,451 --------- --------- --------- 493,734 469,149 928,348 --------- --------- --------- Net income (loss) $ 476,944 $ 133,840 $(403,385) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 4,769 $ 1,338 $ (4,034) ========= ========= ========= Limited partners $ 472,175 $ 132,502 $(399,351) ========= ========= ========= Net income (loss) per limited partnership interest $ 67.95 $ 19.07 $ (57.47) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 1427 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 19,053 $ 1,862,101 $ 1,881,154 Distributions (1,945) (192,484) (194,429) Net loss (4,034) (399,351) (403,385) ----------- ----------- ----------- Partners' capital at December 31, 1998 13,074 1,270,266 1,283,340 Distributions (1,700) (168,320) (170,020) Net income 1,338 132,502 133,840 ----------- ----------- ----------- Partners' capital at December 31, 1999 12,712 1,234,448 1,247,160 Distributions (5,225) (517,289) (522,514) Net income 4,769 472,175 476,944 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 12,256 $ 1,189,334 $ 1,201,590 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 5 1428 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 476,944 $ 133,840 $(403,385) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 30,586 -- 289,124 Depletion 72,903 109,755 266,451 Gain on disposition of assets -- (390) (119) Changes in assets and liabilities: Accounts receivable (67,032) (22,818) 47,684 Accounts payable (3,834) 2,839 (7,697) --------- --------- --------- Net cash provided by operating activities 509,567 223,226 192,058 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (11,495) (8,325) (11,900) Proceeds from dispositions of assets -- 390 119 --------- --------- --------- Net cash used in investing activities (11,495) (7,935) (11,781) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (522,514) (170,020) (194,429) --------- --------- --------- Net increase (decrease) in cash (24,442) 45,271 (14,152) Cash at beginning of year 130,083 84,812 98,964 --------- --------- --------- Cash at end of year $ 105,641 $ 130,083 $ 84,812 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1429 PARKER & PARSLEY 89-B, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 89-B, L.P. (the "Partnership") is a limited partnership organized in 1989 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1430 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $30,586 and $289,124 related to its proved oil and gas properties during 2000 and 1998, respectively. 8 1431 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $211,364 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 476,944 $ 133,840 $(403,385) Impairment of oil and gas properties for financial reporting purposes 30,586 -- 289,124 Depletion and depreciation provisions for tax reporting purposes less than amounts deducted for financial reporting purposes 63,879 100,769 254,734 Other, net (1,322) (3,050) 3,282 --------- --------- --------- Net income per Federal income tax returns $ 570,087 $ 231,559 $ 143,755 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the net costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- ------- Development costs $ 11,495 $ 8,325 $11,900 ========= ========= =======
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 188,868 $ 188,868 Completed wells and equipment 5,666,935 5,655,440 ----------- ----------- 5,855,803 5,844,308 Accumulated depletion (4,894,889) (4,791,400) ----------- ----------- Net oil and gas properties $ 960,914 $ 1,052,908 =========== ===========
9 1432 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $147,103 $142,197 $136,965 Reimbursement of general and administrative expenses $ 28,269 $ 17,812 $ 15,438
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 89-B Conv., L.P. ("EMPL") Parker & Parsley 89-B Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 72 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 89-B Conv., L.P. is 52.421545% and 47.578455%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1433
Oil and NGLs Gas (bbls) (mcf) ------------ -------- Net proved reserves at January 1, 1998 519,501 809,915 Revisions (222,853) (272,177) Production (39,063) (57,643) -------- -------- Net proved reserves at December 31, 1998 257,585 480,095 Revisions 295,189 456,122 Production (35,879) (51,400) -------- -------- Net proved reserves at December 31, 1999 516,895 884,817 Revisions 1,443 (174,232) Production (34,089) (46,454) -------- -------- Net proved reserves at December 31, 2000 484,249 664,131 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.35 per barrel of NGLs and $7.90 per mcf of gas, discounted at 10% was approximately $3,756,000 and undiscounted was $7,461,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise. 11 1434
For the years ended December 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 15,796 $ 12,909 $ 2,874 Future production costs (8,335) (7,619) (2,162) -------- -------- -------- 7,461 5,290 712 10% annual discount factor (3,705) (2,457) (247) -------- -------- -------- Standardized measure of discounted future net cash flows $ 3,756 $ 2,833 $ 465 ======== ======== ========
For the years ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (602) $ (260) $ (163) Net changes in prices and production costs 1,674 1,262 (1,263) Revisions of previous quantity estimates (185) 1,931 (311) Accretion of discount 283 47 208 Changes in production rates, timing and other (247) (612) (84) ------- ------- ------- Change in present value of future net revenues 923 2,368 (1,613) ------- ------- ------- Balance, beginning of year 2,833 465 2,078 ------- ------- ------- Balance, end of year $ 3,756 $ 2,833 $ 465 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 ---- ---- ---- Plains Marketing, L.P. 55% 51% - Genesis Crude Oil, L.P. - - 59% Western Gas Resources, Inc. 4% 6% 26%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $41,588 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all 12 1435 Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $6,949,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1436 PARKER & PARSLEY 89-B, L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 61% to $961,197 for 2000 as compared to $597,130 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 21,703 barrels of oil, 12,386 barrels of natural gas liquids ("NGLs") and 46,454 mcf of gas were sold, or 41,831 barrel of oil equivalents ("BOEs"). In 1999, 22,376 barrels of oil, 13,503 barrels of NGLs and 51,400 mcf of gas were sold, or 44,446 BOEs. 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 increased $12.25, or 72%, from $16.96 in 1999 to $29.21 in 2000. The average price received per barrel of NGLs increased $5.99, or 63%, from $9.57 in 1999 to $15.56 in 2000. The average price received per mcf of gas increased 69% from $1.72 in 1999 to $2.90 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $493,734 as compared to $469,149 in 1999, an increase of $24,585, or 5%. The increase was due to increases in the impairment of oil and gas properties, production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $359,243 in 2000 and $337,025 in 1999, resulting in a $22,218 increase, or 7%. The increase was primarily due to higher production taxes associated with higher oil and gas prices, offset by a decline in well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 39% from $22,369 in 1999 to $31,002 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $28,269 in 2000 and $17,812 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $30,586 related to its oil and gas properties during 2000. Depletion was $72,903 in 2000 as compared to $109,755 in 1999, representing a decrease of $36,852, or 34%. This decrease was primarily due to an 8,955 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1437 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 15% to $597,130 from $518,801 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 22,376 barrels of oil, 13,503 barrels of NGLs and 51,400 mcf of gas were sold, or 44,446 BOEs. In 1998, 24,633 barrels of oil, 14,430 barrels of NGLs and 57,643 mcf of gas were sold, or 48,670 BOEs. The average price received per barrel of oil increased $3.70, or 28%, from $13.26 in 1998 to $16.96 in 1999. The average price received per barrel of NGLs increased $2.63, or 38%, from $6.94 in 1998 to $9.57 in 1999. The average price received per mcf of gas increased 8% from $1.60 in 1998 to $1.72 in 1999. Total costs and expenses decreased in 1999 to $469,149 as compared to $928,348 in 1998, a decrease of $459,199, or 49%. The decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $337,025 in 1999 and $355,148 in 1998, resulting in an $18,123 decrease, or 5%. The decrease was due to reductions in ad valorem taxes and well maintenance costs. During this period, G&A increased 27% from $17,625 in 1998 to $22,369 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $17,812 in 1999 and $15,438 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $289,124 related to its oil and gas properties during 1998. Depletion was $109,755 in 1999 compared to $266,451 in 1998, representing a decrease of $156,696, or 59%. This decrease was the result of an increase in proved reserves of 191,467 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $286,341 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $368,079, offset by increases in production costs paid of $22,218, G&A expenses paid of $8,633 and working capital of $50,887. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $419,447 to oil and gas receipts, offset by $51,368 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices, offset by a decline in well maintenance costs. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited 1438 to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on several oil and gas properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $522,514, of which $5,225 was distributed to the managing general partner and $517,289 to the limited partners. In 1999, cash distributions to the partners were $170,020, of which $1,700 was distributed to the managing general partner and $168,320 to the limited partners. 1439 PARKER & PARSLEY 89-B, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 475,940 $ 450,799 $ 961,197 $ 597,130 $ 518,801 $ 791,004 $ 935,268 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 30,586 $ -- $ 289,124 $ 364,625 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 232,611 $ 224,992 $ 476,944 $ 133,840 $ (403,385) $ (135,918) $ 377,397 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 2,326 $ 2,250 $ 4,769 $ 1,338 $ (4,034) $ (1,359) $ 3,774 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 230,285 $ 222,742 $ 472,175 $ 132,502 $ (399,351) $ (134,559) $ 373,623 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 33.14 $ 32.05 $ 67.95 $ 19.07 $ (57.47) $ (19.36) $ 53.77 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 26.50 $ 33.22 $ 74.44 $ 24.22 $ 27.70 $ 62.96 $ 61.30 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,265,919 $1,266,353 $1,214,575 $1,263,979 $1,297,320 $1,902,831 $2,477,410 ========== ========== ========== ========== ========== ========== ==========
1440 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Private Investment 89, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Private Investment 89, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1441 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 7,060 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 5,651 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 1,998 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 284.67 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 4.14 times the past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 161.58 -- as of December 31, 2000(c) $ 150.75 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 264.89 Liquidation Value per $1,000 Limited Partner Investment(c). (e) $ 276.24 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 165
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2039, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1442 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1443 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 193,621 $ 101,600 Accounts receivable - oil and gas sales 131,396 118,399 ---------- ---------- Total current assets 325,017 219,999 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,237,687 5,223,723 Accumulated depletion (4,386,574) (4,351,220) ---------- ---------- Net oil and gas properties 851,113 872,503 ---------- ---------- $ 1,176,130 $ 1,092,502 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 21,803 $ 15,443 Partners' capital: Managing general partner 13,539 12,767 Limited partners (176.5 interests) 1,140,788 1,064,292 ---------- ---------- 1,154,327 1,077,059 ---------- ---------- $ 1,176,130 $ 1,092,502 ========== ==========
The financial information included as of June 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. 2 1444 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 202,783 $ 199,796 $ 452,230 $ 388,517 Interest 1,532 2,009 3,061 3,476 -------- -------- -------- -------- 204,315 201,805 455,291 391,993 -------- -------- -------- -------- Costs and expenses: Oil and gas production 88,516 79,969 233,371 158,403 General and administrative 6,328 5,993 15,038 11,655 Depletion 14,013 14,214 35,354 28,961 -------- -------- -------- -------- 108,857 100,176 283,763 199,019 -------- -------- -------- -------- Net income $ 95,458 $ 101,629 $ 171,528 $ 192,974 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 954 $ 1,017 $ 1,715 $ 1,930 ======== ======== ======== ======== Limited partners $ 94,504 $ 100,612 $ 169,813 $ 191,044 ======== ======== ======== ======== Net income per limited partnership interest $ 535.43 $ 570.04 $ 962.11 $1,082.40 ======== ======== ======== ========
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. 3 1445 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 12,767 $1,064,292 $1,077,059 Distributions (943) (93,317) (94,260) Net income 1,715 169,813 171,528 --------- --------- --------- Balance at June 30, 2001 $ 13,539 $1,140,788 $1,154,327 ========= ========= =========
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. 4 1446 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ----------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 171,528 $ 192,974 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 35,354 28,961 Changes in assets and liabilities: Accounts receivable (12,997) (19,770) Accounts payable 6,360 5,186 -------- -------- Net cash provided by operating activities 200,245 207,351 -------- -------- Cash flows from investing activities: Additions to oil and gas properties (14,685) (3,016) Proceeds from asset dispositions 721 158 -------- -------- Net cash used in investing activities (13,964) (2,858) -------- -------- Cash flows used in financing activities: Cash distributions to partners (94,260) (201,904) -------- -------- Net increase in cash 92,021 2,589 Cash at beginning of period 101,600 105,420 -------- -------- Cash at end of period $ 193,621 $ 108,009 ======== ========
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. 5 1447 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Private Investment 89, L.P. (the "Partnership") was organized in 1989 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1990. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 16% to $452,230 for the six months ended June 30, 2001 as compared to $388,517 for the same period in 2000. The increase in revenues resulted from higher average prices received and an 6 1448 increase in production. For the six months ended June 30, 2001, 11,227 barrels of oil, 3,467 barrels of natural gas liquids ("NGLs") and 21,188 mcf of gas were sold, or 18,225 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 11,599 barrels of oil, 3,620 barrels of NGLs and 13,324 mcf of gas were sold, or 17,440 BOEs. The average price received per barrel of oil increased slightly from $27.07 for the six months ended June 30, 2000 to $27.14 for the same period in 2001. The average price received per barrel of NGLs increased $1.53, or 11%, from $13.37 during the six months ended June 30, 2000 to $14.90 for the same period in 2001. The average price received per mcf of gas increased 131% from $1.96 during the six months ended June 30, 2000 to $4.53 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $283,763 for the six months ended June 30, 2001 as compared to $199,019 for the same period in 2000, an increase of $84,744, or 43%. This increase was due to increases in production costs, general and administrative expenses ("G&A") and depletion. Production costs were $233,371 for the six months ended June 30, 2001 and $158,403 for the same period in 2000, resulting in a $74,968 increase, or 47%. The increase was attributable to additional workover and well maintenance costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 29%, from $11,655 for the six months ended June 30, 2000 to $15,038 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues in addition to increases in audit and tax fees. Depletion was $35,354 for the six months ended June 30, 2001 as compared to $28,961 for the same period in 2000, an increase of $6,393, or 22%. This increase was due to a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decrease in oil production of 372 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 1% to $202,783 for the three months ended June 30, 2001 as compared to $199,796 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas 7 1449 and an increase in production, offset by lower average prices received for oil and NGLs. For the three months ended June 30, 2001, 5,318 barrels of oil, 1,848 barrels of NGLs and 10,180 mcf of gas were sold, or 8,863 BOEs. For the three months ended June 30, 2000, 5,732 barrels of oil, 1,766 barrels of NGLs and 6,851 mcf of gas were sold, or 8,640 BOEs. The average price received per barrel of oil decreased $.60, or 2%, from $27.37 for the three months ended June 30, 2000 to $26.77 for the three months ended June 30, 2001. The average price received per barrel of NGLs decreased $1.95, or 13%, from $15.25 during the three months ended June 30, 2000 to $13.30 for the same period in 2001. The average price received per mcf of gas increased 51% to $3.52 during the three months ended June 30, 2001 from $2.33 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $108,857 for the three months ended June 30, 2001 as compared to $100,176 for the same period in 2000, an increase of $8,681, or 9%. This increase was due to increases in production costs and G&A, offset by a decline in depletion. Production costs were $88,516 for the three months ended June 30, 2001 and $79,969 for the same period in 2000, resulting in an $8,547 increase, or 11%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A increased 6%, from $5,993 for the three months ended June 30, 2000 to $6,328 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $14,013 for the three months ended June 30, 2001 as compared to $14,214 for the same period in 2000, a decrease of $201, or 1%. This decrease was attributable to a decrease in oil production of 414 barrels for the three months ended June 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 decreased $7,106 during the six months ended June 30, 2001 from the same period in 2000. This decrease was due to increases in production costs of $74,968 and G&A expenses of $3,383, offset by an increase in oil and gas receipts of $63,298 and a reduction in working capital of $7,947. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $40,500 to oil and gas receipts and $22,798 resulting from an increase in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional workover and well maintenance costs incurred to stimulate well production and increased production taxes associated 8 1450 with higher oil and gas prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues in addition to increases in audit and tax fees. Net Cash Used in Investing Activities The Partnership's investing activities included expenditures related to equipment upgrades on various oil and gas properties for the six months ended June 30, 2001 and 2000. Proceeds from asset dispositions of $721 and $158 for the six months ended June 30, 2001 and 2000, respectively, were due to equipment credits received on active wells. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $94,260, of which $943 was distributed to the managing general partner and $93,317 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $201,904, of which $2,019 was distributed to the managing general partner and $199,885 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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. 9 1451 The limited partners are urged to read the proxy statement/prospectus of Pioneer filed with the Securities and Exchange Commission, when it is finalized, 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 preliminary and (when filed) 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. 10 1452 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1453 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Private Investment 89, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley Private Investment 89, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Private Investment 89, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1454 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 101,600 $ 105,420 Accounts receivable - oil and gas sales 118,399 76,918 ----------- ----------- Total current assets 219,999 182,338 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,223,723 5,213,140 Accumulated depletion (4,351,220) (4,291,008) ----------- ----------- Net oil and gas properties 872,503 922,132 ----------- ----------- $ 1,092,502 $ 1,104,470 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 15,443 $ 15,871 Partners' capital: Managing general partner 12,767 12,882 Limited partners (176.5 interests) 1,064,292 1,075,717 ----------- ----------- 1,077,059 1,088,599 ----------- ----------- $ 1,092,502 $ 1,104,470 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1455 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- --------- Revenues: Oil and gas $ 856,030 $ 487,809 $ 478,637 Interest 8,294 4,555 5,752 --------- --------- --------- 864,324 492,364 484,389 --------- --------- --------- Costs and expenses: Oil and gas production 321,340 311,071 300,564 General and administrative 28,583 19,470 16,898 Impairment of oil and gas properties - 44,421 18,873 Depletion 60,212 76,798 258,483 --------- --------- --------- 410,135 451,760 594,818 --------- --------- --------- Net income (loss) $ 454,189 $ 40,604 $(110,429) ========= ========= ========= Allocation of net income (loss): Managing general partner $ 4,542 $ 406 $ (1,104) ========= ========= ========= Limited partners $ 449,647 $ 40,198 $(109,325) ========= ========= ========= Net income (loss) per limited partnership interest $2,547.58 $ 227.75 $ (619.41) ========= ========= =========
The accompanying notes are an integral part of these financial statements. 4 1456 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 16,634 $ 1,447,067 $ 1,463,701 Distributions (2,019) (199,798) (201,817) Net loss (1,104) (109,325) (110,429) ----------- ----------- ----------- Partners' capital at December 31, 1998 13,511 1,137,944 1,151,455 Distributions (1,035) (102,425) (103,460) Net income 406 40,198 40,604 ----------- ----------- ----------- Partners' capital at December 31, 1999 12,882 1,075,717 1,088,599 Distributions (4,657) (461,072) (465,729) Net income 4,542 449,647 454,189 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 12,767 $ 1,064,292 $ 1,077,059 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 5 1457 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 454,189 $ 40,604 (110,429) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - 44,421 18,873 Depletion 60,212 76,798 258,483 Changes in assets and liabilities: Accounts receivable (41,481) (30,189) 17,499 Accounts payable (428) 3,058 (9,920) --------- --------- --------- Net cash provided by operating activities 472,492 134,692 174,506 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (10,741) (10,151) (14,992) Proceeds from asset dispositions 158 - 6,106 --------- --------- --------- Net cash used in investing activities (10,583) (10,151) (8,886) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (465,729) (103,460) (201,817) --------- --------- --------- Net increase (decrease) in cash (3,820) 21,081 (36,197) Cash at beginning of year 105,420 84,339 120,536 --------- --------- --------- Cash at end of year $ 101,600 $ 105,420 $ 84,339 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1458 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Private Investment 89, L.P. (the "Partnership") was organized in 1989 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1990. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1459 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non- partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $44,421 and $18,873 related to its proved oil and gas properties during 1999 and 1998, respectively. 8 1460 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $49,559 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 454,189 $ 40,604 $(110,429) Impairment of oil and gas properties for financial reporting purposes - 44,421 18,873 Depletion and depreciation for tax reporting purposes less than amounts for financial reporting purposes 49,670 66,310 239,923 Other, net (1,023) (3,073) 9,369 --------- --------- --------- Net income per Federal income tax returns $ 502,836 $ 148,262 $ 157,736 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ---------- ---------- ---------- Development costs $ 10,741 $ 10,151 $ 14,992 ========== ========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 58,953 $ 58,953 Completed wells and equipment 5,164,770 5,154,187 ----------- ----------- 5,223,723 5,213,140 Accumulated depletion (4,351,220) (4,291,008) ----------- ----------- Net oil and gas properties $ 872,503 $ 922,132 =========== ===========
9 1461 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 126,729 $ 122,574 $ 123,196 Reimbursement of general and administrative expenses $ 25,581 $ 14,534 $ 14,259
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 89 Private Conv., L.P. ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- ----------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------ -------- Net proved reserves at January 1, 1998 480,284 559,912 Revisions (179,534) (180,570) Production (36,741) (44,624) -------- -------- Net proved reserves at December 31, 1998 264,009 334,718 Revisions 227,645 277,954 Production (30,310) (32,985) -------- -------- Net proved reserves at December 31, 1999 461,344 579,687 Revisions 37,767 (55,380) Production (30,738) (30,037) -------- -------- Net proved reserves at December 31, 2000 468,373 494,270 ======== ========
10 1462 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.18 per barrel of NGLs and $7.93 per mcf of gas, discounted at 10% was approximately $3,336,000 and undiscounted was $6,999,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------------- 2000 1999 1998 --------- --------- --------- (in thousands) Oil and gas producing activities: Future cash inflows $ 14,511 $ 11,459 $ 2,862 Future production costs (7,512) (6,395) (2,112) --------- --------- --------- 6,999 5,064 750 10% annual discount factor (3,663) (2,516) (271) --------- --------- --------- Standardized measure of discounted future net cash flows $ 3,336 $ 2,548 $ 479 ========= ========= =========
11 1463
For the years ended December 31, ---------------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (535) $ (177) $ (178) Net changes in prices and production costs 1,060 1,324 (1,107) Revisions of previous quantity estimates 183 1,588 (261) Accretion of discount 255 48 189 Changes in production rates, timing and other (175) (714) (48) -------- -------- -------- Change in present value of future net revenues 788 2,069 (1,405) -------- -------- -------- Balance, beginning of year 2,548 479 1,884 -------- -------- -------- Balance, end of year $ 3,336 $ 2,548 $ 479 ======== ======== ========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 65% 64% - Genesis Crude Oil, L.P. - - 57% Western Gas Resources, Inc. 1% 3% 15% GPM Gas Corporation 3% 3% 5%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $48,161 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 12 1464 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $7,060,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1465 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 75% to $856,030 for 2000 as compared to $487,809 in 1999. The increase in revenues resulted from higher average prices received, offset by a slight decline in production. In 2000, 22,438 barrels of oil, 8,300 barrels of natural gas liquids ("NGLs") and 30,037 mcf of gas were sold, or 35,744 barrel of oil equivalents ("BOEs"). In 1999, 20,601 barrels of oil, 9,709 barrels of NGLs and 32,985 mcf of gas were sold, or 35,808 BOEs. 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 increased $11.94, or 70%, from $17.06 in 1999 to $29.00 in 2000. The average price received per barrel of NGLs increased $6.17, or 71%, from $8.69 in 1999 to $14.86 in 2000. The average price received per mcf of gas increased 74% from $1.57 in 1999 to $2.73 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses decreased in 2000 to $410,135 as compared to $451,760 in 1999, a decrease of $41,625, or 9%. The decrease was due to a decline in depletion and the impairment of oil and gas properties, offset by an increase in production costs and general and administrative expenses ("G&A"). Production costs were $321,340 in 2000 and $311,071 in 1999, resulting in a $10,269 increase, or 3%. The increase was primarily due to higher production taxes associated with higher oil and gas prices, offset by lower well maintenance costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 47% from $19,470 in 1999 to $28,583 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $25,581 in 2000 and $14,534 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $44,421 related to its oil and gas properties during 1999. Depletion was $60,212 in 2000 as compared to $76,798 in 1999, representing a decrease of $16,586, or 22%. This decrease was primarily due to a 23,945 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999. 1466 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 2% to $487,809 from $478,637 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 20,601 barrels of oil, 9,709 barrels of NGLs and 32,985 mcf of gas were sold, or 35,808 BOEs. In 1998, 25,672 barrels of oil, 11,069 barrels of NGLs and 44,624 mcf of gas were sold, or 44,178 BOEs. The average price received per barrel of oil increased $3.78, or 28%, from $13.28 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs increased $2.12, or 32%, from $6.57 in 1998 to $8.69 in 1999. The average price received per mcf of gas increased 8% from $1.46 in 1998 to $1.57 in 1999. Total costs and expenses decreased in 1999 to $451,760 as compared to $594,818 in 1998, a decrease of $143,058, or 24%. The decrease was due to a decline in depletion, offset by an increase in the impairment of oil and gas properties, production costs and G&A. Production costs were $311,071 in 1999 and $300,564 in 1998, resulting in a $10,507 increase, or 3%. The increase was due to an increase in well maintenance costs incurred to stimulate well production, offset by declines in ad valorem and production taxes. During this period, G&A increased 15% from $16,898 in 1998 to $19,470 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $14,534 in 1999 and $14,259 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $44,421 and $18,873 related to its oil and gas properties during 1999 and 1998, respectively. Depletion was $76,798 in 1999 compared to $258,483 in 1998, representing a decrease of $181,685, or 70%. This decrease was the result of a combination of factors that included an increase in proved reserves of 160,524 barrels of oil during 1999 as a result of higher commodity prices, a decline in oil production of 5,071 barrels for the period ended December 31, 1999 compared to the same period in 1998 and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $337,800 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $371,960, offset by increases in production costs paid of 1467 $10,269, G&A expenses paid of $9,113 and working capital of $14,778. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $347,665 to oil and gas receipts and an increase of $24,295 resulting from the increase in oil production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices, offset by lower well maintenance costs. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on active properties. Proceeds from asset dispositions of $158 in 2000 were from equipment credits received on one active well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $465,729, of which $4,657 was distributed to the managing general partner and $461,072 to the limited partners. In 1999, cash distributions to the partners were $103,460, of which $1,035 was distributed to the managing general partner and $102,425 to the limited partners. 1468 PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 452,230 $ 388,517 $ 856,030 $ 487,809 $ 478,637 $ 675,051 $ 800,390 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ 44,421 $ 18,873 $ 377,878 $ 79,530 ========== ========== ========== ========== ========== ========== ========== Gain on litigation settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 171,528 $ 192,974 $ 454,189 $ 40,604 $ (110,429) $ (183,640) $ 249,498 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 1,715 $ 1,930 $ 4,542 $ 406 $ (1,104) $ (1,836) $ 2,495 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 169,813 $ 191,044 $ 449,647 $ 40,198 $ (109,325) $ (181,804) $ 247,003 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 962.11 $ 1,082.40 $ 2,547.58 $ 227.75 $ (619.41) $(1,030.05) $ 1,399.45 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 528.71 $ 1,132.49 $ 2,612.31 $ 580.31 $ 1,132.00 $ 2,068.82 $ 1,932.01 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,176,130 $1,100,726 $1,092,502 $1,104,470 $1,164,268 $1,486,434 $2,033,774 ========== ========== ========== ========== ========== ========== ==========
1469 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 90-A CONV., L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 90-A Conv., L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 90-A Conv., L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1470 PARKER & PARSLEY 90-A CONV., L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 2,359 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 2,146 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 584 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 248.84 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.29 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 194.62 -- as of December 31, 2000 (c) $ 183.97 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 230.61 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 241.59 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 125 (c), (f)
----------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2040, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1471 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1472 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 80,551 $ 30,771 Accounts receivable - oil and gas sales 32,965 42,233 ---------- ---------- Total current assets 113,516 73,004 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 1,761,394 1,761,261 Accumulated depletion (1,403,593) (1,390,348) ---------- ---------- Net oil and gas properties 357,801 370,913 ---------- ---------- $ 471,317 $ 443,917 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 7,547 $ 5,524 Partners' capital: Managing general partner 4,666 4,412 Limited partners (2,359 interests) 459,104 433,981 ---------- ---------- 463,770 438,393 ---------- ---------- $ 471,317 $ 443,917 ========== ==========
The financial information included as of June 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. 2 1473 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 65,354 $ 61,992 $ 147,209 $ 125,481 Interest 592 740 1,155 1,274 Gain on disposition of assets - 3,262 - 3,262 -------- -------- -------- -------- 65,946 65,994 148,364 130,017 -------- -------- -------- -------- Costs and expenses: Oil and gas production 30,568 30,880 57,199 55,415 General and administrative 1,962 1,979 4,916 3,892 Depletion 6,402 5,291 13,245 12,429 -------- -------- -------- -------- 38,932 38,150 75,360 71,736 -------- -------- -------- -------- Net income $ 27,014 $ 27,844 $ 73,004 $ 58,281 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 270 $ 279 $ 730 $ 583 ======== ======== ======== ======== Limited partners $ 26,744 $ 27,565 $ 72,274 $ 57,698 ======== ======== ======== ======== Net income per limited partnership interest $ 11.34 $ 11.69 $ 30.64 $ 24.46 ======== ======== ======== ========
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. 3 1474 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 4,412 $ 433,981 $ 438,393 Distributions (476) (47,151) (47,627) Net income 730 72,274 73,004 -------- --------- --------- Balance at June 30, 2001 $ 4,666 $ 459,104 $ 463,770 ======== ========= =========
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. 4 1475 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 73,004 $ 58,281 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 13,245 12,429 Gain on disposition of assets - (3,262) Changes in assets and liabilities: Accounts receivable 9,268 (6,705) Accounts payable 2,023 1,579 -------- -------- Net cash provided by operating activities 97,540 62,322 -------- -------- Cash flows from investing activities: Additions to oil and gas properties (133) (1,451) Proceeds from asset dispositions - 3,262 -------- -------- Net cash provided by (used in) investing activities (133) 1,811 -------- -------- Cash flows used in financing activities: Cash distributions to partners (47,627) (64,863) -------- -------- Net increase (decrease) in cash 49,780 (730) Cash at beginning of period 30,771 41,094 -------- -------- Cash at end of period $ 80,551 $ 40,364 ======== ========
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. 5 1476 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 90-A Conv., L.P. (the "Partnership") was organized in 1990 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1991. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 17% to $147,209 for the six months ended June 30, 2001 as compared to $125,481 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by 6 1477 a decrease in production. For the six months ended June 30, 2001, 3,049 barrels of oil, 1,282 barrels of natural gas liquids ("NGLs") and 8,155 mcf of gas were sold, or 5,690 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 3,105 barrels of oil, 1,853 barrels of NGLs and 6,902 mcf of gas were sold, or 6,108 BOEs. The average price received per barrel of oil increased $.43, or 2%, from $27.46 for the six months ended June 30, 2000 to $27.89 for the same period in 2001. The average price received per barrel of NGLs increased $3.31, or 24%, from $13.56 during the six months ended June 30, 2000 to $16.87 for the same period in 2001. The average price received per mcf of gas increased 126% from $2.20 during the six months ended June 30, 2000 to $4.98 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 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 six months ended June 30, 2001. Gain on disposition of assets of $3,262 was recognized during the six months ended June 30, 2000 resulting from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $75,360 for the six months ended June 30, 2001 as compared to $71,736 for the same period in 2000, an increase of $3,624, or 5%. This increase was due to increases in production costs, general and administrative expenses ("G&A") and depletion. Production costs were $57,199 for the six months ended June 30, 2001 and $55,415 for the same period in 2000 resulting in a $1,784 increase, or 3%. The increase was due to higher production taxes due to higher oil and gas prices and additional well maintenance costs incurred to stimulate well production, offset by a decrease in workover costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 26% from $3,892 for the six months ended June 30, 2000 to $4,916 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $13,245 for the six months ended June 30, 2001 as compared to $12,429 for the same period in 2000, an increase of $816, or 7%. This increase was primarily due to a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices. 7 1478 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 5% to $65,354 for the three months ended June 30, 2001 as compared to $61,992 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by lower average prices received for oil and a decrease in production. For the three months ended June 30, 2001, 1,414 barrels of oil, 749 barrels of NGLs and 4,057 mcf of gas were sold, or 2,839 BOEs. For the three months ended June 30, 2000, 1,455 barrels of oil, 976 barrels of NGLs and 3,472 mcf of gas were sold, or 3,010 BOEs. The average price received per barrel of oil decreased $.22, or 1%, from $27.54 for the three months ended June 30, 2000 to $27.32 for the same period in 2001. The average price received per barrel of NGLs increased $1.69, or 13%, from $13.36 during the three months ended June 30, 2000 to $15.05 for the same period in 2001. The average price received per mcf of gas increased 49% to $3.82 during the three months ended June 30, 2001 from $2.57 during the same period in 2000. Gain on disposition of assets of $3,262 was recognized during the three months ended June 30, 2000 resulting from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $38,932 for the three months ended June 30, 2001 as compared to $38,150 for the same period in 2000, an increase of $782, or 2%. This increase was due to an increase in depletion, offset by declines in production costs and G&A. Production costs were $30,568 for the three months ended June 30, 2001 and $30,880 for the same period in 2000, resulting in a $312 decrease, or 1%. The decrease was due to lower workover costs, offset by additional well maintenance costs incurred to stimulate well production. During this period, G&A decreased 1%, from $1,979 for the three months ended June 30, 2000 to $1,962 for the same period in 2001, primarily due to a decrease in audit and tax fees. Depletion was $6,402 for the three months ended June 30, 2001 as compared to $5,291 for the same period in 2000, an increase of $1,111, or 21%. This increase was attributable to a decrease in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $35,218 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $21,609 and a reduction of $16,417 in working capital, offset by increases in production costs 8 1479 of $1,784 and G&A expenses of $1,024. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $26,555 to oil and gas receipts, offset by $4,946 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production, offset by a decrease in workover costs. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities during the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on various oil and gas properties. Proceeds of $3,262 recognized during the six months ended June 30, 2000 were from equipment credits on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $47,627, of which $476 was distributed to the managing general partner and $47,151 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $64,863, of which $649 was distributed to the managing general partner and $64,214 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. 9 1480 Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1481 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1482 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 90-A Conv., L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 90-A Conv., L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90-A Conv., L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1483 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 -------- --------- ASSETS ------ Current assets: Cash $ 30,771 $ 41,094 Accounts receivable - oil and gas sales 42,233 24,997 -------- -------- Total current assets 73,004 66,091 -------- -------- Oil and gas properties - at cost, based on the successful efforts accounting method 1,761,261 1,758,206 Accumulated depletion (1,390,348) (1,363,812) ---------- ----------- Net oil and gas properties 370,913 394,394 -------- -------- $ 443,917 $ 460,485 ========= ========= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 5,524 $ 5,332 Partners' capital: Managing general partner 4,412 4,579 Limited partners (2,359 interests) 433,981 450,574 -------- --------- 438,393 455,153 -------- -------- $ 443,917 $ 460,485 ========= =========
The accompanying notes are an integral part of these financial statements. 3 1484 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ------- ------- ------ Revenues: Oil and gas $ 279,230 $ 169,279 $152,905 Interest 3,027 1,751 2,080 Gain on disposition of assets 3,262 - - ------- ------- ------ 285,519 171,030 154,985 ------- ------- ------- Costs and expenses: Oil and gas production 114,159 93,178 97,819 General and administrative 9,468 7,068 4,961 Impairment of oil and gas properties - - 11,795 Depletion 26,536 36,271 55,908 ------- ------- ------ 150,163 136,517 170,483 ------- ------- ------- Net income (loss) $ 135,356 $ 34,513 $(15,498) ======== ======== ======= Allocation of net income (loss): Managing general partner $ 1,354 $ 345 $ (155) ======== ======== ======= Limited partners $ 134,002 $ 34,168 $(15,343) ======== ======== ======= Net income (loss) per limited partnership interest $ 56.80 $ 14.48 $ (6.50) ======== ======== =======
The accompanying notes are an integral part of these financial statements. 3 1485 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ------------- -------------- ----------- Partners' capital at January 1, 1998 $ 5,602 $ 551,772 $ 557,374 Distributions (678) (67,095) (67,773) Net loss (155) (15,343) (15,498) ------ -------- ------- Partners' capital at December 31, 1998 4,769 469,334 474,103 Distributions (535) (52,928) (53,463) Net income 345 34,168 34,513 ------ -------- ------- Partners' capital at December 31, 1999 4,579 450,574 455,153 Distributions (1,521) (150,595) (152,116) Net income 1,354 134,002 135,356 ------ -------- ------- Partners' capital at December 31, 2000 $ 4,412 $ 433,981 $ 438,393 ======= ========= ========
The accompanying notes are an integral part of these financial statements. 5 1486 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------- ------- ------- Cash flows from operating activities: Net income (loss) $ 135,356 $ 34,513 $ (15,498) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 11,795 Depletion 26,536 36,271 55,908 Gain on disposition of assets (3,262) - - Changes in assets and liabilities: Accounts receivable (17,236) (7,632) 12,991 Accounts payable 192 841 (2,835) ------- ------- ------- Net cash provided by operating activities 141,586 63,993 62,361 -------- ------- ------- Cash flows from investing activities: Additions to oil and gas properties (3,055) (2,507) (3,134) Proceeds from asset dispositions 3,262 2,501 - ------- ------- ------- Net cash provided by (used in) investing activities 207 (6) (3,134) ------- ------- ------- Cash flows used in financing activities: Cash distributions to partners (152,116) (53,463) (67,773) -------- ------- ------- Net increase (decrease) in cash (10,323) 10,524 (8,546) Cash at beginning of year 41,094 30,570 39,116 ------- ------- ------- Cash at end of year $ 30,771 $ 41,094 $ 30,570 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 6 1487 PARKER & PARSLEY 90-A CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 90-A Conv., L.P. (the "Partnership") was organized in 1990 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1991. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1488 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $11,795 related to its proved oil and gas properties during 1998. 8 1489 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $109,150 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $135,356 $34,513 $(15,498) Depletion and depreciation for tax reporting purposes less than amounts for financial reporting purposes 23,651 33,412 51,723 Impairment of oil and gas properties for financial reporting purposes -- -- 11,795 Other, net (403) 1,343 1,229 --------- --------- --------- Net income per Federal income tax returns $158,604 $69,268 $49,249 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- --------- Development costs $ 3,055 $ 2,507 $ 3,134 ========= ========= =========
Capitalized oil and gas properties consist of the following:
2000 1999 --------- --------- Proved properties: Property acquisition costs $ 69,332 $ 69,332 Completed well and equipment 1,691,929 1,688,874 --------- --------- 1,761,261 1,758,206 Accumulated depletion (1,390,348) (1,363,812) ---------- ---------- Net oil and gas properties $ 370,913 $ 394,394 ========= =========
9 1490 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 42,503 $ 41,777 $ 41,366 Reimbursement of general and administrative expenses $ 8,329 $ 5,027 $ 4,007
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 90-A Conv., L.P. ("EMPL"), Parker & Parsley 90-A, L.P. and the Partnership are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 14 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 90-A, L.P. is 25.725191% and 74.274809%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1491
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 137,987 205,757 Revisions (49,089) (52,907) Production (11,399) (16,309) ---------- ---------- Net proved reserves at December 31, 1998 77,499 136,541 Revisions 71,585 121,688 Production (10,130) (14,989) ---------- ---------- Net proved reserves at December 31, 1999 138,954 243,240 Revisions 6,057 (59,715) Production (9,876) (13,365) ---------- ---------- Net proved reserves at December 31, 2000 135,135 170,160 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.25 per barrel of NGLs and $7.89 per mcf of gas, discounted at 10% was approximately $1,053,000 and undiscounted was $2,025,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (in thousands) Oil and gas producing activities: Future cash inflows $ 4,309 $ 3,455 $ 854 Future production costs (2,284) (2,046) (669) -------- -------- -------- 2,025 1,409 185 10% annual discount factor (972) (653) (54) -------- -------- -------- Standardized measure of discounted future net cash flows $ 1,053 $ 756 $ 131 ========= ========= =========
11 1492
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (165) $ (76) $ (55) Net changes in prices and production costs 446 419 (356) Revisions of previous quantity estimates (26) 511 (61) Accretion of discount 76 13 56 Changes in production rates, timing and other (34) (242) (14) -------- --------- -------- Change in present value of future net revenues 297 625 (430) -------- --------- -------- Balance, beginning of year 756 131 561 -------- --------- -------- Balance, end of year $ 1,053 $ 756 $ 131 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 54% 51% - TEPPCO Crude Oil LLC 12% 11% - NGTS LLC 10% 10% - Genesis Crude Oil, L.P. - - 57% Western Gas Resources, Inc. 2% 5% 22%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., TEPPCO Crude Oil LLC and NGTS LLC were $13,068, $2,535 and $1,423, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the Partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 12 1493 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $2,359,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission, organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. 13 1494 PARKER & PARSLEY 90-A CONV., L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 65% to $279,230 for 2000 as compared to $169,279 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 6,255 barrels of oil, 3,621 barrels of natural gas liquids ("NGLs") and 13,365 mcf of gas were sold, or 12,104 barrel of oil equivalents ("BOEs"). In 1999, 6,133 barrels of oil, 3,997 barrels of NGLs and 14,989 mcf of gas were sold, or 12,628 BOEs. 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 increased $12.26, or 72%, from $17.06 in 1999 to $29.32 in 2000. The average price received per barrel of NGLs increased $6.04, or 63%, from $9.58 in 1999 to $15.62 in 2000. The average price received per mcf of gas increased 67% from $1.76 in 1999 to $2.94 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $3,262 was recognized during 2000 resulting from equipment credits received on one well. Total costs and expenses increased in 2000 to $150,163 as compared to $136,517 in 1999, an increase of $13,646, or 10%. The increase was due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $114,159 in 2000 and $93,178 in 1999, resulting in a $20,981 increase, or 23%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 34% from $7,068 in 1999 to $9,468 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $8,329 in 2000 and $5,027 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $26,536 in 2000 as compared to $36,271 in 1999, representing a decrease of $9,735, or 27%. This decrease was primarily due to a 10,806 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 11% to $169,279 from $152,905 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 6,133 barrels of oil, 3,997 barrels 1495 of NGLs and 14,989 mcf of gas were sold, or 12,628 BOEs. In 1998, 7,476 barrels of oil, 3,923 barrels of NGLs and 16,309 mcf of gas were sold, or 14,117 BOEs. The average price received per barrel of oil increased $3.86, or 29%, from $13.20 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs increased $2.56, or 36%, from $7.02 in 1998 to $9.58 in 1999. The average price received per mcf of gas increased 7% from $1.64 in 1998 to $1.76 in 1999. Total costs and expenses decreased in 1999 to $136,517 as compared to $170,483 in 1998, a decrease of $33,966, or 20%. The decrease was due to reductions in depletion, the impairment of oil and gas properties and production costs, offset by an increase in G&A. Production costs were $93,178 in 1999 and $97,819 in 1998, resulting in a $4,641 decrease, or 5%. The decrease was due to declines in ad valorem taxes and well maintenance costs. During this period, G&A increased 42% from $4,961 in 1998 to $7,068 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $5,027 in 1999 and $4,007 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $11,795 related to its oil and gas properties during 1998. Depletion was $36,271 in 1999 compared to $55,908 in 1998, representing a decrease of $19,637, or 35%. This decrease was primarily the result of an increase in proved reserves of 43,411 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 1,343 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $77,593 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $111,227, offset by increases in production costs paid of 1496 $20,981, G&A expenses paid of $2,400 and working capital of $10,253. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $118,292 to oil and gas receipts, offset by $7,065 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on active properties. Proceeds from disposition of assets of $3,262 was recognized during 2000 resulting from equipment credits received on one well. Proceeds of $2,501 during 1999 were received from equipment credits on one active well and one temporarily abandoned well. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $152,116, of which $1,521 was distributed to the managing general partner and $150,595 to the limited partners. In 1999, cash distributions to the partners were $53,463, of which $535 was distributed to the managing general partner and $52,928 to the limited partners. 1497 PARKER & PARSLEY 90-A CONV., L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, --------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 -------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $147,209 $ 125,481 $ 279,230 $ 169,279 $ 152,905 $ 223,014 $ 269,347 ======== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 11,795 $ 111,163 $ -- ======== ========== ========== ========== ========== ========== ========== Net income (loss) $ 73,004 $ 58,281 $ 135,356 $ 34,513 $ (15,498) $ (51,948) $ 90,354 ======== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 730 $ 583 $ 1,354 $ 345 $ (155) $ (520) $ 903 ======== ========== ========== ========== ========== ========== ========== Limited partners $ 72,274 $ 57,698 $ 134,002 $ 34,168 $ (15,343) $ (51,428) $ 89,451 ======== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 30.64 $ 24.46 $ 56.80 $ 14.48 $ (6.50) $ (21.80) $ 37.92 ======== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 19.99 $ 27.22 $ 63.84 $ 22.44 $ 28.44 $ 53.06 $ 53.75 ======== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $471,317 $ 455,482 $ 443,917 $ 460,485 $ 478,594 $ 564,700 $ 742,427 ======== ========== ========== ========== ========== ========== ==========
1498 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 90-A, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 90-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 90-A, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1499 PARKER & PARSLEY 90-A, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 6,811 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 6,196 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,662 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 249.45 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.25 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 195.17 -- as of December 31, 2000 (c) $ 184.56 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 231.22 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 242.20 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 125 (c), (f)
----------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2039, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1500 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, 2001 Commission File No. 33-26097-05 PARKER & PARSLEY 90-A, L.P. ----------------------------- (Exact name of Registrant as specified in its charter) Delaware 75-2329245 ----------------------------------------- --------------------- (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 / / 1501 PARKER & PARSLEY 90-A, L.P. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................. 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12 2 1502 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 236,952 $ 92,685 Accounts receivable - oil and gas sales 95,199 122,067 ---------- ---------- Total current assets 332,151 214,752 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,085,569 5,085,185 Accumulated depletion (4,052,625) (4,014,368) ---------- ---------- Net oil and gas properties 1,032,944 1,070,817 ---------- ---------- $ 1,365,095 $ 1,285,569 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 22,274 $ 15,770 Partners' capital: Managing general partner 13,509 12,779 Limited partners (6,811 interests) 1,329,312 1,257,020 ---------- ---------- 1,342,821 1,269,799 ---------- ---------- $ 1,365,095 $ 1,285,569 ========== ==========
The financial information included as of June 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 1503 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 188,539 $ 178,954 $ 424,897 $ 362,257 Interest 1,752 2,175 3,409 3,758 Gain on disposition of assets - 9,419 - 9,419 -------- -------- -------- -------- 190,291 190,548 428,306 375,434 -------- -------- -------- -------- Costs and expenses: Oil and gas production 88,253 89,154 165,130 159,970 General and administrative 5,824 6,057 14,385 11,738 Depletion 18,523 15,331 38,257 35,963 -------- -------- -------- -------- 112,600 110,542 217,772 207,671 -------- -------- -------- -------- Net income $ 77,691 $ 80,006 $ 210,534 $ 167,763 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 777 $ 800 $ 2,105 $ 1,678 ======== ======== ======== ======== Limited partners $ 76,914 $ 79,206 $ 208,429 $ 166,085 ======== ======== ======== ======== Net income per limited partnership interest $ 11.29 $ 11.62 $ 30.60 $ 24.38 ======== ======== ======== ========
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. 4 1504 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 12,779 $1,257,020 $1,269,799 Distributions (1,375) (136,137) (137,512) Net income 2,105 208,429 210,534 -------- --------- --------- Balance at June 30, 2001 $ 13,509 $1,329,312 $1,342,821 ======== ========= =========
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. 5 1505 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 210,534 $ 167,763 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 38,257 35,963 Gain on disposition of assets - (9,419) Changes in assets and liabilities: Accounts receivable 26,868 (19,346) Accounts payable 6,504 5,068 --------- --------- Net cash provided by operating activities 282,163 180,029 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (384) (4,190) Proceeds from asset dispositions - 9,419 --------- --------- Net cash provided by (used in) investing activities (384) 5,229 --------- --------- Cash flows used in financing activities: Cash distributions to partners (137,512) (187,276) --------- --------- Net increase (decrease) in cash 144,267 (2,018) Cash at beginning of period 92,685 122,649 --------- --------- Cash at end of period $ 236,952 $ 120,631 ========= =========
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 1506 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 17% to $424,897 for the six months ended June 30, 2001 as compared to $362,257 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 8,803 barrels 7 1507 of oil, 3,690 barrels of natural gas liquids ("NGLs") and 23,539 mcf of gas were sold, or 16,416 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 8,965 barrels of oil, 5,338 barrels of NGLs and 19,897 mcf of gas were sold, or 17,619 BOEs. The average price received per barrel of oil increased $.43, or 2%, from $27.46 for the six months ended June 30, 2000 to $27.89 for the same period in 2001. The average price received per barrel of NGLs increased $3.31, or 24%, from $13.56 during the six months ended June 30, 2000 to $16.87 for the same period in 2001. The average price received per mcf of gas increased 126% from $2.20 during the six months ended June 30, 2000 to $4.98 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 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 six months ended June 30, 2001. Gain on disposition of assets of $9,419 was recognized during the six months ended June 30, 2000 resulting from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $217,772 for the six months ended June 30, 2001 as compared to $207,671 for the same period in 2000, an increase of $10,101, or 5%. This increase was due to increases in production costs, general and administrative expenses ("G&A") and depletion. Production costs were $165,130 for the six months ended June 30, 2001 and $159,970 for the same period in 2000 resulting in a $5,160 increase, or 3%. The increase was due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production, offset by a decrease in workover costs. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 23%, from $11,738 for the six months ended June 30, 2000 to $14,385 for the same period in 2001, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $38,257 for the six months ended June 30, 2001 as compared to $35,963 for the same period in 2000, an increase of $2,294, or 6%. This increase was primarily due to a reduction in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 5% to $188,539 for the three months ended June 30, 2001 as compared to $178,954 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas and NGLs, offset by lower average prices received for oil and a decrease in production. For the three months ended June 30, 2001, 4,081 barrels of oil, 8 1508 2,147 barrels of NGLs and 11,701 mcf of gas were sold, or 8,178 BOEs. For the three months ended June 30, 2000, 4,198 barrels of oil, 2,815 barrels of NGLs and 10,000 mcf of gas were sold, or 8,680 BOEs. The average price received per barrel of oil decreased $.22, or 1%, from $27.54 for the three months ended June 30, 2000 to $27.32 for the same period in 2001. The average price received per barrel of NGLs increased $1.69, or 13%, from $13.36 during the three months ended June 30, 2000 to $15.05 for the same period in 2001. The average price received per mcf of gas increased 49% from $2.57 during the three months ended June 30, 2000 to $3.82 for the same period in 2001. Gain on disposition of assets of $9,419 was recognized during the three months ended June 30, 2000 from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $112,600 for the three months ended June 30, 2001 as compared to $110,542 for the same period in 2000, an increase of $2,058, or 2%. This increase was due to an increase in depletion, offset by declines in production costs and G&A. Production costs were $88,253 for the three months ended June 30, 2001 and $89,154 for the same period in 2000 resulting in a $901 decrease, or 1%. The decrease was due to lower workover costs, offset by additional well maintenance costs incurred to stimulate well production. During this period, G&A decreased 4%, from $6,057 for the three months ended June 30, 2000 to $5,824 for the same period in 2001, primarily due to a decrease in audit and tax fees. Depletion was $18,523 for the three months ended June 30, 2001 as compared to $15,331 for the same period in 2000, an increase of $3,192, or 21%. This increase was primarily due to a reduction in proved reserves during the period ended June 30, 2001 as a result of lower commodity prices. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $102,134 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase of $62,291 in oil and gas sales receipts and a reduction of $47,650 in working capital, offset by increases in production costs of $5,160 and G&A expenses of $2,647. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $76,480 to oil and gas receipts, offset by $14,189 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production, offset by a decrease in workover costs. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. 9 1509 Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were for expenditures related to equipment upgrades on active oil and gas properties. Proceeds of $9,419 recognized during the six months ended June 30, 2000 were from equipment credits on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $137,512, of which $1,375 was distributed to the managing general partner and $136,137 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $187,276, of which $1,873 was distributed to the managing general partner and $185,403 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) final proxy statement/prospectus and other relevant documents relating to 10 1510 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Form 8-K - none 11 1511 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) SIGNATURES 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 90-A, L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 8, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1512 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-26097-05 PARKER & PARSLEY 90-A, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2329245 ---------------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $6,664,000. As of March 8, 2001, the number of outstanding limited partnership interests was 6,811. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1513 PART I ITEM 1. BUSINESS Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 6,811 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers. Of the Partnership's total oil and gas revenues for 2000, approximately 54%, 12% and 10% were attributable to sales made to Plains Marketing, L.P., TEPPCO Crude Oil LLC and NGTS LLC, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 1514 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 27 oil and gas wells. Two wells have been sold. At December 31, 2000, 25 wells were producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1515 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 6,811 outstanding limited partnership interests held of record by 525 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $434,802 and $152,818, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ---------- ----------- ----------- ---------- ----------- Operating results: ----------------- Oil and gas sales $ 806,344 $ 488,752 $ 441,480 $ 643,882 $ 777,677 ========== =========== =========== ========== =========== Impairment of oil and gas properties $ - $ - $ 34,145 $ 321,019 $ - ========== =========== =========== ========== =========== Net income (loss) $ 390,714 $ 99,965 $ (44,421) $ (149,948) $ 261,210 ========== =========== =========== ========== =========== Allocation of net income (loss): Managing general partner $ 3,907 $ 1,000 $ (444) $ (1,499) $ 2,612 ========== =========== =========== ========== =========== Limited partners $ 386,807 $ 98,965 $ (43,977) $ (148,449) $ 258,598 ========== =========== =========== ========== =========== Limited partners' net income (loss) per limited partnership interest $ 56.79 $ 14.53 $ (6.46) $ (21.80) $ 37.97 ========== =========== =========== ========== =========== Limited partners' cash distributions per limited partnership interest $ 63.84 $ 22.44 $ 28.44 $ 53.06 $ 53.75 ========== =========== =========== ========== =========== At year end: ----------- Identifiable assets $1,285,569 $ 1,333,533 $ 1,385,777 $1,634,061 $ 2,146,498 ========== =========== =========== ========== ===========
4 1516 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 65% to $806,344 for 2000 as compared to $488,752 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 18,065 barrels of oil, 10,454 barrels of natural gas liquids ("NGLs") and 38,570 mcf of gas were sold, or 34,947 barrel of oil equivalents ("BOEs"). In 1999, 17,702 barrels of oil, 11,546 barrels of NGLs and 43,302 mcf of gas were sold, or 36,465 BOEs. 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 increased $12.26, or 72% from $17.06 in 1999 to $29.32 in 2000. The average price received per barrel of NGLs increased $6.04, or 63% from $9.58 in 1999 to $15.62 in 2000. The average price received per mcf of gas increased 67% in 2000 to $2.94 compared to $1.76 in 1999. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $9,419 was recognized during 2000 resulting from equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $433,960 as compared to $394,007 in 1999, an increase of $39,953, or 10%. This increase was primarily due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $329,608 in 2000 and $269,017 in 1999, resulting in an increase of $60,591, or 23%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 36% from $20,244 in 1999 to $27,629 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $24,038 in 2000 and $14,514 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 1517 Depletion was $76,723 in 2000 compared to $104,746 in 1999, representing a decrease of $28,023, or 27%. This decrease was primarily due to a 33,982 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 11% to $488,752 from $441,480 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 17,702 barrels of oil, 11,546 barrels of NGLs and 43,302 mcf of gas were sold, or 36,465 BOEs. In 1998, 21,587 barrels of oil, 11,328 barrels of NGLs and 47,086 mcf of gas were sold, or 40,763 BOEs. The average price received per barrel of oil increased $3.86, or 29% from $13.20 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs increased $2.56, or 36% from $7.02 in 1998 to $9.58 in 1999. The average price received per mcf of gas increased 7% in 1999 to $1.76 compared to $1.64 in 1998. Total costs and expenses decreased in 1999 to $394,007 as compared to $492,078 in 1998, a decrease of $98,071, or 20%. This decrease was primarily due to declines in depletion, the impairment of oil and gas properties and production costs, offset by an increase in G&A. Production costs were $269,017 in 1999 and $282,430 in 1998, resulting in a $13,413 decline, or 5%. The decline includes a reduction in ad valorem taxes and less well maintenance costs. During this period, G&A increased 43% from $14,124 in 1998 to $20,244 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $14,514 in 1999 and $11,560 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $34,145 related to its oil and gas properties during 1998. Depletion was $104,746 in 1999 compared to $161,379 in 1998. This represented a decrease of $56,633, or 35%. This decrease was primarily the result of an increase in proved reserves of 125,332 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 3,885 barrels for the period ended December 31, 1999 compared to the same period in 1998. 6 1518 Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $223,816 during the year ended December 31, 2000 from 1999. This increase was due to increases in oil and gas sales receipts of $321,283, offset by increases in production costs paid of $60,591, G&A expenses paid of $7,385 and working capital of $29,491. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $341,604 to oil and gas receipts, offset by $20,321 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's investing activities during 2000 and 1999 were for expenditures related to oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $9,419 were recognized during 2000 from equipment credits on one fully depleted well and proceeds of $7,220 in 1999 were from equipment credits received on one active property and one temporarily abandoned property. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $439,194, of which $4,392 was distributed to the managing general partner and $434,802 to the limited partners. In 1999, cash distributions to the partners were $154,362 of which $1,544 was distributed to the managing general partner and $152,818 to the limited partners. 7 1519 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 90-A, L.P.: Independent Auditors' Report......................................................... 9 Balance Sheets as of December 31, 2000 and 1999...................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 13 Notes to Financial Statements........................................................ 14
8 1520 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 90-A, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 90-A, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90-A, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 1521 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 92,685 $ 122,649 Accounts receivable - oil and gas sales 122,067 72,167 ----------- ----------- Total current assets 214,752 194,816 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,085,185 5,076,362 Accumulated depletion (4,014,368) (3,937,645) ----------- ----------- Net oil and gas properties 1,070,817 1,138,717 ----------- ----------- $ 1,285,569 $ 1,333,533 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 15,770 $ 15,254 Partners' capital: Managing general partner 12,779 13,264 Limited partners (6,811 interests) 1,257,020 1,305,015 ----------- ----------- 1,269,799 1,318,279 ----------- ----------- $ 1,285,569 $ 1,333,533 =========== ===========
The accompanying notes are an integral part of these financial statements. 10 1522 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 -------- -------- --------- Revenues: Oil and gas $806,344 $488,752 $ 441,480 Interest 8,911 5,220 6,177 Gain on disposition of assets 9,419 - - -------- -------- --------- 824,674 493,972 447,657 -------- -------- --------- Costs and expenses: Oil and gas production 329,608 269,017 282,430 General and administrative 27,629 20,244 14,124 Impairment of oil and gas properties - - 34,145 Depletion 76,723 104,746 161,379 -------- -------- --------- 433,960 394,007 492,078 -------- -------- --------- Net income (loss) $390,714 $ 99,965 $ (44,421) ======== ======== ========= Allocation of net income (loss): Managing general partner $ 3,907 $ 1,000 $ (444) ======== ======== ========= Limited partners $386,807 $ 98,965 $ (43,977) ======== ======== ========= Net income (loss) per limited partnership interest $ 56.79 $ 14.53 $ (6.46) ======== ======== =========
The accompanying notes are an integral part of these financial statements. 11 1523 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- ------------ ------------ Partners' capital at January 1, 1998 $ 16,209 $ 1,596,562 $ 1,612,771 Distributions (1,957) (193,717) (195,674) Net loss (444) (43,977) (44,421) -------- ----------- ----------- Partners' capital at December 31, 1998 13,808 1,358,868 1,372,676 Distributions (1,544) (152,818) (154,362) Net income 1,000 98,965 99,965 -------- ----------- ----------- Partners' capital at December 31, 1999 13,264 1,305,015 1,318,279 Distributions (4,392) (434,802) (439,194) Net income 3,907 386,807 390,714 -------- ----------- ----------- Partners' capital at December 31, 2000 $ 12,779 $ 1,257,020 $ 1,269,799 ======== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 1524 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 390,714 $ 99,965 $ (44,421) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 34,145 Depletion 76,723 104,746 161,379 Gain on disposition of assets (9,419) - - Changes in assets and liabilities: Accounts receivable (49,900) (22,046) 37,507 Accounts payable 516 2,153 (8,189) --------- --------- --------- Net cash provided by operating activities 408,634 184,818 180,421 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (8,823) (7,237) (9,047) Proceeds from asset dispositions 9,419 7,220 - --------- --------- --------- Net cash provided by (used in) investing activities 596 (17) (9,047) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (439,194) (154,362) (195,674) --------- --------- --------- Net increase (decrease) in cash (29,964) 30,439 (24,300) Cash at beginning of year 122,649 92,210 116,510 --------- --------- --------- Cash at end of year $ 92,685 $ 122,649 $ 92,210 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 13 1525 PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 1526 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $34,145 related to its proved oil and gas properties during 1998. 15 1527 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $315,080 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 390,714 $ 99,965 $ (44,421) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 68,390 96,496 149,296 Impairment of oil and gas properties for financial reporting purposes - - 34,145 Other, net (1,209) 3,745 3,688 --------- --------- --------- Net income per Federal income tax returns $ 457,895 $ 200,206 $ 142,708 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- ---------- Development costs $ 8,823 $ 7,237 $ 9,047 ========= ========= ==========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ---------- Proved properties: Property acquisition costs $ 200,177 $ 200,177 Completed wells and equipment 4,885,008 4,876,185 ----------- ----------- 5,085,185 5,076,362 Accumulated depletion (4,014,368) (3,937,645) ----------- ----------- Net oil and gas properties $ 1,070,817 $ 1,138,717 =========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 122,715 $ 120,620 $ 119,432 Reimbursement of general and administrative expenses $ 24,038 $ 14,514 $ 11,560
16 1528 The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and P&P Employees 90-A, L.P., ("EMPL"), Parker & Parsley 90-A Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 147 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 90-A Conv., L.P. is 74.274809% and 25.725191%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------ ----------- Net proved reserves at January 1, 1998 398,405 594,075 Revisions (141,729) (152,757) Production (32,915) (47,086) ------------ ----------- Net proved reserves at December 31, 1998 223,761 394,232 Revisions 206,682 351,371 Production (29,248) (43,302) ------------ ----------- Net proved reserves at December 31, 1999 401,195 702,301 Revisions 21,424 (168,710) Production (28,519) (38,570) ------------ ----------- Net proved reserves at December 31, 2000 394,100 495,021 ========== ==========
17 1529 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.25 per barrel of NGLs and $7.89 per mcf of gas, discounted at 10% was approximately $3,042,000 and undiscounted was $5,865,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ----------------------------------- 2000 1999 1998 -------- ------- ------- (in thousands) Oil and gas producing activities: Future cash inflows $ 12,560 $ 9,975 $ 2,464 Future production costs (6,695) (5,908) (1,931) -------- ------- ------- 5,865 4,067 533 10% annual discount factor (2,823) (1,884) (155) -------- ------- ------- Standardized measure of discounted future net cash flows $ 3,042 $ 2,183 $ 378 ======== ======= ======= For the years ended December 31, ------------------------------------ 2000 1999 1998 -------- --------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (477) $ (220) $ (159) Net changes in prices and production costs 1,267 1,209 (1,027) Revisions of previous quantity estimates (44) 1,476 (174) Accretion of discount 218 38 162 Changes in production rates, timing and other (105) (698) (41) -------- --------- -------- Change in present value of future net revenues 859 1,805 (1,239) -------- --------- -------- Balance, beginning of year 2,183 378 1,617 -------- --------- -------- Balance, end of year $ 3,042 $ 2,183 $ 378 ======== ========= ========
18 1530 NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 54% 51% - TEPPCO Crude Oil LLC 12% 11% - NGTS LLC 10% 10% 3% Western Gas Resources, Inc. 2% 5% 22% Genesis Crude Oil, L.P. - - 57%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., TEPPCO Crude Oil LLC and NGTS LLC were $37,832, $7,318 and $4,105, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 19 1531 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $6,811,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 1532 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 1533 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 1534 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 15% during the first three years and approximately 20% after three years of its operating and general and administrative expenses. In return, they are allocated approximately 15% during the first three years and approximately 20% after three years of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 147 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 23 1535
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 122,715 $ 120,620 $ 119,432 Reimbursement of general and administrative expenses $ 24,038 $ 14,514 $ 11,560
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 1536 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 1537 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 90-A, L.P. Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 28, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President. Chief March 28, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 28, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 28, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 28, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
26 1538 PARKER & PARSLEY 90-A, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Form of Agreement of Limited Partnership - of Parker & Parsley 90-A, L.P. incorporated by reference to Exhibit A of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of Limited Partner Subscription Agreement - incorporated by reference to Exhibit C of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of General Partner Subscription Agreement - incorporated by reference to Exhibit D of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Power of Attorney incorporated by reference to - Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 10(b) Form of Development Drilling Program - Agreement incorporated by reference to Exhibit B of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097)
27 1539 PARKER & PARSLEY 90-A, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 424,897 $ 362,257 $ 806,344 $ 488,752 $ 441,480 $ 643,882 $ 777,677 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 34,145 $ 321,019 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 210,534 $ 167,763 $ 390,714 $ 99,965 $ (44,421) $ (149,948) $ 261,210 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 2,105 $ 1,678 $ 3,907 $ 1,000 $ (444) $ (1,499) $ 2,612 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 208,429 $ 166,085 $ 386,807 $ 98,965 $ (43,977) $ (148,449) $ 258,598 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 30.60 $ 24.38 $ 56.79 $ 14.53 $ (6.46) $ (21.80) $ 37.97 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 19.99 $ 27.22 $ 63.84 $ 22.44 $ 28.44 $ 53.06 $ 53.75 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,365,095 $1,319,088 $1,285,569 $1,333,533 $1,385,777 $1,634,061 $2,146,498 ========== ========== ========== ========== ========== ========== ==========
1540 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 90-B CONV., L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 90-B Conv., L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 90-B Conv., L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1541 PARKER & PARSLEY 90-B CONV., L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 11,897 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 8,765 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 3,221 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 272.55 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.25 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 166.60 -- as of December 31, 2000 (c) $ 156.33 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 253.04 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 264.40 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 155 (c), (f)
----------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2040, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1542 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, 2001 Commission File No. 33-26097-08 PARKER & PARSLEY 90-B CONV., L.P. (Exact name of Registrant as specified in its charter) Delaware 75-2329284 ----------------------------------------- --------------------- (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 / / 1543 PARKER & PARSLEY 90-B CONV., L.P. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000.................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000................... 4 Statement of Partners' Capital for the six months ended June 30, 2001................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................ 6 Notes to Financial Statements........................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K........................ 11 Signatures.............................................. 12 2 1544 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 369,346 $ 132,300 Accounts receivable - oil and gas sales 166,716 209,552 ---------- ---------- Total current assets 536,062 341,852 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,564,578 9,628,120 Accumulated depletion (8,066,067) (8,075,752) ---------- ---------- Net oil and gas properties 1,498,511 1,552,368 ---------- ---------- $ 2,034,573 $ 1,894,220 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 32,466 $ 15,580 Partners' capital: Managing general partner 20,020 18,785 Limited partners (11,897 interests) 1,982,087 1,859,855 ---------- ---------- 2,002,107 1,878,640 ---------- ---------- $ 2,034,573 $ 1,894,220 ========== ==========
The financial information included as of June 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 1545 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 338,348 $ 356,486 $ 763,083 $ 687,189 Interest 2,579 2,684 5,086 4,777 Gain on disposition of assets 1,079 - 3,054 2,023 -------- -------- -------- -------- 342,006 359,170 771,223 693,989 -------- -------- -------- -------- Costs and expenses: Oil and gas production 138,987 143,700 282,193 277,308 General and administrative 9,322 11,592 22,884 21,724 Depletion 27,479 25,752 54,399 52,512 Abandoned property 3,059 - 3,059 - -------- -------- -------- -------- 178,847 181,044 362,535 351,544 -------- -------- -------- -------- Net income $ 163,159 $ 178,126 $ 408,688 $ 342,445 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,632 $ 1,781 $ 4,087 $ 3,424 ======== ======== ======== ======== Limited partners $ 161,527 $ 176,345 $ 404,601 $ 339,021 ======== ======== ======== ======== Net income per limited partnership interest $ 13,58 $ 14.83 $ 34.01 $ 28.50 ======== ======== ======== ========
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. 4 1546 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 18,785 $1,859,855 $1,878,640 Distributions (2,852) (282,369) (285,221) Net income 4,087 404,601 408,688 --------- --------- --------- Balance at June 30, 2001 $ 20,020 $1,982,087 $2,002,107 ========= ========= =========
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. 5 1547 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 408,688 $ 342,445 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 54,399 52,512 Gain on disposition of assets (3,054) (2,023) Changes in assets and liabilities: Accounts receivable 42,836 (25,998) Accounts payable 16,886 12,818 --------- --------- Net cash provided by operating activities 519,755 379,754 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (542) (10,356) Proceeds from asset dispositions 3,054 2,023 --------- --------- Net cash provided by (used in) investing activities 2,512 (8,333) --------- --------- Cash flows used in financing activities: Cash distributions to partners (285,221) (362,661) --------- --------- Net increase in cash 237,046 8,760 Cash at beginning of period 132,300 132,031 --------- --------- Cash at end of period $ 369,346 $ 140,791 ========= =========
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 1548 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 90-B Conv., L.P. (the "Partnership") was organized as a general partnership in 1990 under the laws of the State of Texas and was converted to a Delaware limited partnership on August 1, 1991. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 11% to $763,083 for the six months ended June 30, 2001 as compared to $687,189 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by 7 1549 a decrease in production. For the six months ended June 30, 2001, 17,353 barrels of oil, 6,410 barrels of natural gas liquids ("NGLs") and 35,369 mcf of gas were sold, or 29,658 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 17,958 barrels of oil, 8,604 barrel of NGLs and 33,016 mcf of gas were sold, or 32,065 BOEs. The average price received per barrel of oil increased $.54, or 2%, from $27.72 for the six months ended June 30, 2000 to $28.26 for the same period in 2001. The average price received per barrel of NGLs increased $2.09, or 15%, from $14.00 during the six months ended June 30, 2000 to $16.09 for the same period in 2001. The average price received per mcf of gas increased 130% from $2.08 for the six months ended June 30, 2000 to $4.79 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 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 six months ended June 30, 2001. Gains on disposition of assets of $3,054 and $2,023 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during the period in 2001 was due to salvage income received on one well plugged and abandoned during the current year. The gain recognized during the period in 2000 was from the sale of equipment on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $362,535 for the six months ended June 30, 2001 as compared to $351,544 for the same period in 2000, an increase of $10,991, or 3%. This increase was due to increases in production costs, abandoned property costs, depletion and general and administrative expenses ("G&A"). Production costs were $282,193 for the six months ended June 30, 2001 and $277,308 for the same period in 2000, resulting in a $4,885 increase, or 2%. This increase was primarily due to higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 5% from $21,724 for the six months ended June 30, 2000 to $22,884 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $54,399 for the six months ended June 30, 2001 as compared to $52,512 for the same period in 2000, an increase of $1,887, or 4%. This increase was due to downward revisions to proved reserves on several wells during the period ended June 30, 2001, offset by a reduction in the Partnership's net depletable basis from charges taken 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") during the fourth quarter of 2000 and a decline in oil production of 605 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Abandoned property costs of $3,059 were incurred during the six months ended June 30, 2001 due to the plugging and abandonment of one well during the current period. 8 1550 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $338,348 for the three months ended June 30, 2001 as compared to $356,486 for the same period in 2000. The decrease in revenues resulted from lower average prices received for oil and NGLs and a decline in production, offset by higher average prices received for gas. For the three months ended June 30, 2001, 8,598 barrels of oil, 3,171 barrels of NGLs and 16,373 mcf of gas were sold, or 14,498 BOEs. For the three months ended June 30, 2000, 8,968 barrels of oil, 4,625 barrels of NGLs and 17,395 mcf of gas were sold, or 16,492 BOEs. The average price received per barrel of oil decreased $.51, or 2%, from $27.75 for the three months ended June 30, 2000 to $27.24 for the same period in 2001. The average price received per barrel of NGLs decreased $.22, or 2%, from $14.10 during the three months ended June 30, 2000 to $13.88 for the same period in 2001. The average price received per mcf of gas increased 50% from $2.44 during the three months ended June 30, 2000 to $3.67 for the same period in 2001. Gain on disposition of assets of $1,079 was recognized during the three months ended June 30, 2001 due to salvage income received on one well plugged and abandoned during the current period. Costs and Expenses: Total costs and expenses decreased to $178,847 for the three months ended June 30, 2001 as compared to $181,044 for the same period in 2000, a decrease of $2,197, or 1%. This decrease was due to declines in production costs and G&A, offset by increases in abandoned property costs and depletion. Production costs were $138,987 for the three months ended June 30, 2001 and $143,700 for the same period in 2000, resulting in a $4,713 decrease, or 3%. The decrease was primarily due to lower workover expense. During this period, G&A decreased 20% from $11,592 for the three months ended June 30, 2000 to $9,322 for the same period in 2001, principally 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 a decline in audit and tax fees. Depletion was $27,479 for the three months ended June 30, 2001 as compared to $25,752 for the same period in 2000, an increase of $1,727, or 7%. This increase was due to downward revisions to proved reserves on several properties during the period ended June 30, 2001, offset by 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 370 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 9 1551 Abandoned property costs of $3,059 were incurred during the three months ended June 30, 2001 due to the plugging and abandonment of one well during the current period. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $140,001 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase resulted from an increase of $76,203 in oil and gas sales receipts and a reduction in working capital of $72,902, offset by increases in production costs of $4,885, abandoned property costs of $3,059 and G&A expenses of $1,160. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $117,367 to oil and gas receipts, offset by $41,164 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to an increase in audit and tax fees. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities for the six months ended June 30, 2001 and 2000 were for expenditures related to oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $3,054 and $2,023 were received during the six months ended June 30, 2001 and 2000, respectively. The proceeds recognized during the period in 2001 were due to salvage income from one well plugged and abandoned during the current year. The proceeds recognized during 2000 were derived from the sale of equipment on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $285,221, of which $2,852 was distributed to the managing general partner and $282,369 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $362,661, of which $3,627 was distributed to the managing general partner and $359,034 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge 10 1552 with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Form 8-K - none 11 1553 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) SIGNATURES 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 90-B CONV., L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 6, 2001 By: /s/ Rich Dealy --------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1554 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-26097-08 PARKER & PARSLEY 90-B CONV., L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2329284 ------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $11,817,000. As of March 8, 2001, the number of outstanding limited partnership interests was 11,897. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1555 PART I ITEM 1. BUSINESS Parker & Parsley 90-B Conv., L.P. (the "Partnership") was organized in 1990 as a general partnership under the laws of the State of Texas. The Partnership converted to a Delaware limited partnership on August 1, 1991. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 11,897 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 48% was attributable to sales made to Plains Marketing, L.P., 10% to TEPPCO Crude Oil LLC and 10% to Phillips Petroleum Company. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or 2 1556 other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 104 oil and gas wells. One well has been plugged and abandoned. At December 31, 2000, the Partnership had 103 producing oil and gas wells. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. PART II 3 1557 ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 11,897 outstanding limited partnership interests held of record by 665 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $825,165 and $271,636, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ------------- Operating results: ------------------ Oil and gas sales $ 1,513,122 $ 907,791 $ 764,787 $ 1,118,628 $ 1,382,265 =========== =========== =========== =========== ============= Impairment of oil and gas properties $ 31,774 $ 88,497 $ 275,430 $ 328,594 $ 22,474 =========== =========== =========== =========== ============= Net income (loss) $ 787,438 $ 164,414 $ (373,956) $ (55,191) $ 544,919 =========== =========== =========== =========== ============= Allocation of net income (loss): Managing general partner $ 7,874 $ 1,644 $ (3,740) $ (552) $ 5,449 =========== =========== =========== =========== ============= Limited partners $ 779,564 $ 162,770 $ (370,216) $ (54,639) $ 539,470 =========== =========== =========== =========== ============= Limited partners' net income (loss) per limited partnership interest $ 65.53 $ 13.68 $ (31.12) $ (4.59) $ 45.35 =========== =========== =========== =========== ============= Limited partners' cash distributions per limited partnership interest $ 69.36 $ 22.83 $ 23.66 $ 52.38 $ 56.21 =========== =========== =========== =========== ============= At year end: ------------ Identifiable assets $ 1,894,220 $ 1,949,209 $ 2,057,408 $ 2,727,510 $ 3,402,932 =========== =========== =========== =========== =============
4 1558 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 67% to $1,513,122 for 2000 as compared to $907,791 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 36,592 barrels of oil, 16,796 barrels of natural gas liquids ("NGLs") and 64,786 mcf of gas were sold, or 64,186 barrel of oil equivalents ("BOEs"). In 1999, 36,383 barrels of oil, 17,481 barrels of NGLs and 70,803 mcf of gas were sold, or 65,665 BOEs. 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 increased $12.00, or 70%, from $17.23 in 1999 to $29.23 in 2000. The average price received per barrel of NGLs increased $5.96, or 63%, from $9.49 in 1999 to $15.45 in 2000. The average price received per mcf of gas increased 75% from $1.62 in 1999 to $2.84 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $2,023 recognized in 2000 was due to equipment credits received on one fully depleted well. Total costs and expenses decreased to $739,327 in 2000 as compared to $749,072 in 1999, a decrease of $9,745, or 1%. The decrease was due to declines in the impairment of oil and gas properties and depletion, offset by increases in production costs and general and administrative expenses ("G&A"). Production costs were $557,245 in 2000 and $478,183 in 1999, resulting in an increase of $79,062, or 17%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 30% from $35,038 in 1999 to $45,379 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $40,368 in 2000 and $27,181 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 1559 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized non-cash charges of $31,774 and $88,497 related to its oil and gas properties during 2000 and 1999, respectively. Depletion was $104,929 in 2000 compared to $147,354 in 1999, representing a decrease of $42,425, or 29%. The decrease was primarily due to a 27,994 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 19% to $907,791 from $764,787 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 36,383 barrels of oil, 17,481 barrels of NGLs and 70,803 mcf of gas were sold, or 65,665 BOEs. In 1998, 41,140 barrels of oil, 17,403 barrels of NGLs and 73,460 mcf of gas were sold, or 70,786 BOEs. The average price received per barrel of oil increased $4.11, or 31%, from $13.12 in 1998 to $17.23 in 1999. The average price received per barrel of NGLs increased $2.89, or 44%, from $6.60 in 1998 to $9.49 in 1999. The average price received per mcf of gas increased 8% from $1.50 in 1998 to $1.62 in 1999. Gain on disposition of assets of $1,669 for 1998 was attributable to credits received from the disposal of oil and gas equipment on a fully depleted well and on one well that was plugged and abandoned in a prior year. Total costs and expenses decreased to $749,072 in 1999 as compared to $1,147,349 in 1998, a decrease of $398,277, or 35%. The decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $478,183 in 1999 and $517,526 in 1998, resulting in a $39,343 decrease, or 8%. The decrease was due to declines in well maintenance costs, ad valorem taxes and workover costs, offset by an increase in production taxes due to increased oil and gas sales. During this period, G&A increased 31% from $26,722 in 1998 to $35,038 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $27,181 in 1999 and $22,923 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $88,497 and $275,430 related to its oil and gas properties during 1999 and 1998, respectively. 6 1560 Depletion was $147,354 in 1999 compared to $327,671 in 1998. This represented a decrease of $180,317, or 55%. The decrease was primarily due to an increase in proved reserves of 280,631 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 4,757 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $504,622 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $611,256, offset by increases in production costs paid of $79,062, G&A expenses paid of $10,341 and working capital of $17,231. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $632,790 to oil and gas receipts, offset by $21,534 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on active oil and gas properties. Proceeds from disposition of assets of $2,023 recognized in 2000 were due to equipment credits received on one fully depleted well. 7 1561 Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $833,500, of which $8,335 was distributed to the managing general partner and $825,165 to the limited partners. In 1999, cash distributions to the partners were $274,380, of which $2,744 was distributed to the managing general partner and $271,636 to the limited partners. 8 1562 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 90-B Conv., L.P.: Independent Auditors' Report......................................................... 10 Balance Sheets as of December 31, 2000 and 1999...................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 14 Notes to Financial Statements........................................................ 15
9 1563 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 90-B Conv., L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 90-B Conv., L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90-B Conv., L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 10 1564 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ---------- ASSETS ------ Current assets: Cash $ 132,300 $ 132,031 Accounts receivable - oil and gas sales 209,552 143,411 --------- --------- Total current assets 341,852 275,442 --------- --------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,628,120 9,612,816 Accumulated depletion (8,075,752) (7,939,049) --------- --------- Net oil and gas properties 1,552,368 1,673,767 --------- --------- $ 1,894,220 $ 1,949,209 ========== ========= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 15,580 $ 24,507 Partners' capital: Managing general partner 18,785 19,246 Limited partners (11,897 interests) 1,859,855 1,905,456 --------- --------- 1,878,640 1,924,702 --------- --------- $ 1,894,220 $ 1,949,209 ========= =========
The accompanying notes are an integral part of these financial statements. 11 1565 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 1,513,122 $ 907,791 $ 764,787 Interest 11,620 5,695 6,937 Gain on disposition of assets 2,023 -- 1,669 ----------- ----------- ----------- 1,526,765 913,486 773,393 ----------- ----------- ----------- Costs and expenses: Oil and gas production 557,245 478,183 517,526 General and administrative 45,379 35,038 26,722 Impairment of oil and gas properties 31,774 88,497 275,430 Depletion 104,929 147,354 327,671 ----------- ----------- ----------- 739,327 749,072 1,147,349 ----------- ----------- ----------- Net income (loss) $ 787,438 $ 164,414 $ (373,956) =========== =========== =========== Allocation of net income (loss): Managing general partner $ 7,874 $ 1,644 $ (3,740) =========== =========== =========== Limited partners $ 779,564 $ 162,770 $ (370,216) =========== =========== =========== Net income (loss) per limited partnership interest $ 65.53 $ 13.68 $ (31.12) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 12 1566 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------------- -------------- ---------------- Partners' capital at January 1, 1998 $ 26,929 $2,666,043 $2,692,972 Distributions (2,843) (281,505) (284,348) Net loss (3,740) (370,216) (373,956) ------- -------- -------- Partners' capital at December 31, 1998 20,346 2,014,322 2,034,668 Distributions (2,744) (271,636) (274,380) Net income 1,644 162,770 164,414 ------- -------- -------- Partners' capital at December 31, 1999 19,246 1,905,456 1,924,702 Distributions (8,335) (825,165) (833,500) Net income 7,874 779,564 787,438 ------- -------- -------- Partners' capital at December 31, 2000 $ 18,785 $1,859,855 $1,878,640 ======== ========= =========
The accompanying notes are an integral part of these financial statements. 13 1567 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 787,438 $ 164,414 $(373,956) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 31,774 88,497 275,430 Depletion 104,929 147,354 327,671 Gain on disposition of assets (2,023) -- (1,669) Changes in assets and liabilities: Accounts receivable (66,141) (59,604) 42,963 Accounts payable (8,927) 1,767 (11,798) --------- --------- --------- Net cash provided by operating activities 847,050 342,428 258,641 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (15,304) (12,347) (18,344) Proceeds from disposition of assets 2,023 -- 1,669 --------- --------- --------- Net cash used in investing activities (13,281) (12,347) (16,675) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (833,500) (274,380) (284,348) --------- --------- --------- Net increase (decrease) in cash 269 55,701 (42,382) Cash at beginning of year 132,031 76,330 118,712 --------- --------- --------- Cash at end of year $ 132,300 $ 132,031 $ 76,330 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 14 1568 PARKER & PARSLEY 90-B CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 90-B Conv., L.P. (the "Partnership") was organized as a general partnership in 1990 under the laws of the State of Texas and was converted to a Delaware limited partnership on August 1, 1991. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 15 1569 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $31,774, $88,497 and $275,430 related to its proved oil and gas properties during 2000, 1999 and 1998, respectively. 16 1570 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $233,211 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 787,438 $ 164,414 $(373,956) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 90,499 132,570 175,500 Impairment of oil and gas properties for financial reporting purposes 31,774 88,497 275,430 Other, net (1,742) (4,660) 3,987 --------- --------- --------- Net income per Federal income tax returns $ 907,969 $ 380,821 $ 80,961 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ----------- -------------- -------------- Development costs $ 15,304 $ 12,347 $ 18,344 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ------------ ----------- Proved properties: Property acquisition costs $ 369,498 $ 369,498 Completed wells and equipment 9,258,622 9,243,318 --------- --------- 9,628,120 9,612,816 Accumulated depletion (8,075,752) (7,939,049) ---------- ---------- Net oil and gas properties $1,552,368 $1,673,767 ========== ==========
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ---------------------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 211,037 $ 214,306 $ 209,549 Reimbursement of general and administrative expenses $ 40,368 $ 27,181 $ 22,923
17 1571 The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 90-B Conv., L.P. ("EMPL"), Parker & Parsley 90-B, L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA(1) Partnerships(2) -------------- --------------- Revenues: Proceeds from disposition of depreciable and depletable properties: First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses: First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 80 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 90-B, L.P. is 26.94006% and 73.05994%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) -------------- ----------- Net proved reserves at January 1, 1998 914,930 864,646 Revisions (446,456) (190,771) Production (58,543) (73,460) -------- -------- Net proved reserves at December 31, 1998 409,931 600,415 Revisions 435,645 666,249 Production (53,864) (70,803) -------- -------- Net proved reserves at December 31, 1999 791,712 1,195,861 Revisions 15,019 (155,368) Production (53,388) (64,786) -------- -------- Net proved reserves at December 31, 2000 753,343 975,707 ======== ========
18 1572 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.19 per barrel of NGLs and $7.66 per mcf of gas, discounted at 10% was approximately $5,752,000 and undiscounted was $11,644,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------ 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 24,248 $ 19,527 $ 4,449 Future production costs (12,604) (10,978) (3,339) -------- -------- -------- 11,644 8,549 1,110 10% annual discount factor (5,892) (4,165) (375) -------- -------- -------- Standardized measure of discounted future net cash flows $ 5,752 $ 4,384 $ 735 ======== ======== ========
19 1573
For the years ended December 31, -------------------------------------- 2000 1999 1998 -------- --------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (956) $ (430) $ (247) Net changes in prices and production costs 2,152 2,137 (2,389) Revisions of previous quantity estimates (71) 3,126 (518) Accretion of discount 438 74 362 Changes in production rates, timing and other (195) (1,258) (94) -------- --------- -------- Change in present value of future net revenues 1,368 3,649 (2,886) -------- --------- -------- Balance, beginning of year 4,384 735 3,621 -------- --------- -------- Balance, end of year $ 5,752 $ 4,384 $ 735 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 48% 46% - TEPPCO Crude Oil LLC 10% 11% - Genesis Crude Oil, L.P. - - 58% Western Gas Resources, Inc. 4% 5% 21% Phillips Petroleum Company 10% 5% 5%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., TEPPCO Crude Oil LLC and Phillips Petroleum Company were $65,440, $13,643 and $7,386, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The 20 1574 majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the Partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $11,897,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 1575 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 22 1576 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 23 1577 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 15% during the first three years and approximately 20% after three years of its operating and general and administrative expenses. In return, they are allocated approximately 15% during the first three years and approximately 20% after three years of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 80 limited partnership interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 24 1578
2000 1999 1998 ---------------------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 211,037 $ 214,306 $ 209,549 Reimbursement of general and administrative expenses $ 40,368 $ 27,181 $ 22,923
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 25 1579 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 26 1580 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 90-B CONV., L.P. Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield --------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 28, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 28, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 28, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 28, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 28, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
27 1581 PARKER & PARSLEY 90-B CONV., L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Form of Agreement of Limited Partnership - of Parker & Parsley 90-B Conv., L.P. incorporated by reference to Exhibit A of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of Limited Partner Subscription Agreement - incorporated by reference to Exhibit C of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of General Partner Subscription Agreement - incorporated by reference to Exhibit D of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Power of Attorney incorporated by reference to - Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 10(b) Form of Development Drilling Program - Agreement incorporated by reference to Exhibit B of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097)
28 1582 PARKER & PARSLEY 90-B CONV., L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 763,083 $ 687,189 $1,513,122 $ 907,791 $ 764,787 $1,118,628 $1,382,265 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 31,774 $ 88,497 $ 275,430 $ 328,594 $ 22,474 ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 408,688 $ 342,445 $ 787,438 $ 164,414 $ (373,956) $ (55,191) $ 544,919 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 4,087 $ 3,424 $ 7,874 $ 1,644 $ (3,740) $ (552) $ 5,449 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 404,601 $ 339,021 $ 779,564 $ 162,770 $ (370,216) $ (54,639) $ 539,470 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 34.01 $ 28.50 $ 65.53 $ 13.68 $ (31.12) $ (4.59) $ 45.35 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 23.73 $ 30.18 $ 69.36 $ 22.83 $ 23.66 $ 52.38 $ 56.21 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $2,034,573 $1,941,811 $1,894,220 $1,949,209 $2,057,408 $2,727,510 $3,402,932 ========== ========== ========== ========== ========== ========== ==========
1583 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 90-B, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 90-B, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 90-B, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1584 PARKER & PARSLEY 90-B, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 32,264 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 23,772 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 8,789 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 273.11 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.27 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 166.86 -- as of December 31, 2000 (c) $ 156.56 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 253.59 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 264.95 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 155 (c), (f)
----------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2040, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1585 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, 2001 Commission File No. 33-26097-07 PARKER & PARSLEY 90-B, L.P. ----------------------------- (Exact name of Registrant as specified in its charter) Delaware 75-2329287 ----------------------------------------- --------------------- (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 / / 1586 PARKER & PARSLEY 90-B, L.P. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................. 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12
2 1587 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 1,006,322 $ 364,895 Accounts receivable - oil and gas sales 454,542 568,283 ----------- ----------- Total current assets 1,460,864 933,178 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 25,938,605 26,110,930 Accumulated depletion (21,873,017) (21,899,717) ----------- ----------- Net oil and gas properties 4,065,588 4,211,213 ----------- ----------- $ 5,526,452 $ 5,144,391 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 88,337 $ 42,091 Partners' capital: Managing general partner 54,385 51,027 Limited partners (32,264 interests) 5,383,730 5,051,273 ----------- ----------- 5,438,115 5,102,300 ----------- ----------- $ 5,526,452 $ 5,144,391 =========== ===========
The financial information included as of June 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 1588 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ------------------------ ------------------------ 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues: Oil and gas $ 917,666 $ 966,583 $2,069,524 $1,863,518 Interest 7,073 7,402 14,158 13,142 Gain on disposition of assets 2,926 - 8,283 5,487 --------- --------- --------- --------- 927,665 973,985 2,091,965 1,882,147 --------- --------- --------- --------- Costs and expenses: Oil and gas production 376,953 389,681 765,323 752,025 General and administrative 25,284 31,430 61,934 58,911 Depletion 74,458 69,726 147,093 142,347 Abandoned property 8,296 - 8,296 - --------- --------- --------- --------- 484,991 490,837 982,646 953,283 --------- --------- --------- --------- Net income $ 442,674 $ 483,148 $1,109,319 $ 928,864 ========= ========= ========= ========= Allocation of net income: Managing general partner $ 4,427 $ 4,832 $ 11,093 $ 9,289 ========= ========= ========= ========= Limited partners $ 438,247 $ 478,316 $1,098,226 $ 919,575 ========= ========= ========= ========= Net income per limited partnership interest $ 13.58 $ 14.82 $ 34.04 $ 28.50 ========= ========= ========= =========
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. 4 1589 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 51,027 $5,051,273 $5,102,300 Distributions (7,735) (765,769) (773,504) Net income 11,093 1,098,226 1,109,319 -------- --------- --------- Balance at June 30, 2001 $ 54,385 $5,383,730 $5,438,115 ======== ========= =========
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. 5 1590 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $1,109,319 $ 928,864 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 147,093 142,347 Gain on disposition of assets (8,283) (5,487) Changes in assets and liabilities: Accounts receivable 113,741 (19,535) Accounts payable 46,246 35,060 --------- --------- Net cash provided by operating activities 1,408,116 1,081,249 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (1,468) (28,083) Proceeds from asset dispositions 8,283 5,487 --------- --------- Net cash provided by (used in) investing activities 6,815 (22,596) --------- --------- Cash flows used in financing activities: Cash distributions to partners (773,504) (983,517) --------- --------- Net increase in cash 641,427 75,136 Cash at beginning of period 364,895 311,017 --------- --------- Cash at end of period $1,006,322 $ 386,153 ========= =========
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 1591 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 11% to $2,069,524 for the six months ended June 30, 2001 as compared to $1,863,518 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decrease in production. For the six months ended June 30, 2001, 47,052 barrels of oil, 17,412 barrels of natural gas liquids ("NGLs") and 95,918 7 1592 mcf of gas were sold, or 80,450 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 48,699 barrels of oil, 23,339 barrels of NGLs and 89,536 mcf of gas were sold, or 86,961 BOEs. The average price received per barrel of oil increased $.54, or 2%, from $27.72 for the six months ended June 30, 2000 to $28.26 for the same period in 2001. The average price received per barrel of NGLs increased $2.09, or 15%, from $14.00 during the six months ended June 30, 2000 to $16.09 for the same period in 2001. The average price received per mcf of gas increased 130% from $2.08 for the six months ended June 30, 2000 to $4.79 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 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 six months ended June 30, 2001. Gains on disposition of assets of $8,283 and $5,487 were recognized during the six months ended June 30, 2001 and 2000, respectively. The gain recognized during the period in 2001 was due to salvage income received from one well plugged and abandoned during the current year. The gain recognized during the period in 2000 was from the sale of equipment on one fully depleted well. Costs and Expenses: Total costs and expenses increased to $982,646 for the six months ended June 30, 2001 as compared to $953,283 for the same period in 2000, an increase of $29,363, or 3%. The increase was due to increases in production costs, abandoned property costs, depletion and general and administrative expenses ("G&A"). Production costs were $765,323 for the six months ended June 30, 2001 and $752,025 for the same period in 2000, resulting in a $13,298 increase, or 2%. The increase was primarily the result of higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 5% from $58,911 for the six months ended June 30, 2000 to $61,934 for the same period in 2001, primarily due to an increase in tax and audit fees. Depletion was $147,093 for the six months ended June 30, 2001 as compared to $142,347 for the same period in 2000, an increase of $4,746, or 3%. This increase was primarily due to downward revisions to proved reserves on several wells during the period ended June 30, 2001, offset by a reduction in the Partnership's net depletable basis from charges taken 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") during the fourth quarter of 2000 and a decline in oil production of 1,647 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Abandoned property costs of $8,296 were incurred during the six months ended June 30, 2001 due to the plugging and abandonment of one well during the current year. 8 1593 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $917,666 for the three months ended June 30, 2001 as compared to $966,583 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil and NGLs, offset by higher average prices received for gas. For the three months ended June 30, 2001, 23,315 barrels of oil, 8,603 barrels of NGLs and 44,414 mcf of gas were sold, or 39,320 BOEs. For the three months ended June 30, 2000, 24,312 barrels of oil, 12,529 barrels of NGLs and 47,154 mcf of gas were sold, or 44,700 BOEs. The average price received per barrel of oil decreased $.51, or 2%, from $27.75 for the three months ended June 30, 2000 to $27.24 for the same period in 2001. The average price received per barrel of NGLs decreased $.22, or 2%, from $14.10 during the three months ended June 30, 2000 to $13.88 for the same period in 2001. The average price received per mcf of gas increased 50% from $2.44 during the three months ended June 30, 2000 to $3.67 for the same period in 2001. Gain on disposition of assets of $2,926 was recognized during the three months ended June 30, 2001 due to salvage income received from one well plugged and abandoned during the current period. Costs and Expenses: Total costs and expenses decreased to $484,991 for the three months ended June 30, 2001 as compared to $490,837 for the same period in 2000, a decrease of $5,846, or 2%. This decrease was due to declines in production costs and G&A, offset by increases in abandoned property costs and depletion. Production costs were $376,953 for the three months ended June 30, 2001 and $389,681 for the same period in 2000 resulting in a $12,728 decrease, or 3%. This decrease was primarily due to lower workover expense. During this period, G&A decreased 20% from $31,430 for the three months ended June 30, 2000 to $25,284 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 a decline in audit and tax fees. Depletion was $74,458 for the three months ended June 30, 2001 as compared to $69,726 for the same period in 2000, an increase of $4,732, or 7%. This increase was primarily due to downward revisions to proved reserves on several wells during the period ended June 30, 2001, offset by 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 997 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. Abandoned property costs of $8,296 were incurred during the three months ended June 30, 2001 due to the plugging and abandonment of one well during the current period. 9 1594 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $326,867 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase resulted from an increase of $207,022 in oil and gas sales receipts and a reduction in working capital of $144,462, offset by increases in production costs of $13,298, abandoned property costs of $8,296 and G&A expenses of $3,023. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $318,339 to oil and gas receipts, offset by $111,317 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to an increase in audit and tax fees. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities for the six months ended June 30, 2001 and 2000 were related to expenditures for upgrades of oil and gas equipment on active properties. Proceeds from asset dispositions of $8,283 and $5,487 were received during the six months ended June 30, 2001 and 2000, respectively. The proceeds recognized during the period in 2001 were due to salvage income from one well plugged and abandoned during the current year. The proceeds recognized during 2000 were from the sale of equipment on one fully depleted well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $773,504, of which $7,735 was distributed to the managing general partner and $765,769 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $983,517, of which $9,835 was distributed to the managing general partner and $973,682 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships 10 1595 that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Form 8-K - none 11 1596 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) SIGNATURES 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 90-B, L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 6, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1597 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-26097-07 PARKER & PARSLEY 90-B, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2329287 -------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $32,181,000. As of March 8, 2001, the number of outstanding limited partnership interests was 32,264. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1598 PART I ITEM 1. BUSINESS Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 32,264 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA supplies all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 48% was attributable to sales made to Plains Marketing, L.P., 10% to TEPPCO Crude Oil LLC and 10% to Phillips Petroleum Company. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 1599 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 104 oil and gas wells. One well has been plugged and abandoned. At December 31, 2000, the Partnership had 103 producing oil and gas wells. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1600 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 32,264 outstanding limited partnership interests held of record by 2,201 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $2,237,802 and $736,663, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ------------ ----------- ---------- ----------- ----------- Operating results: ----------------- Oil and gas sales $ 4,103,548 $ 2,461,819 $ 2,074,056 $ 3,033,675 $ 3,748,608 =========== =========== ========== =========== =========== Impairment of oil and gas properties $ 86,231 $ 240,063 $ 744,642 $ 891,257 $ 61,080 =========== =========== ========== =========== =========== Net income (loss) $ 2,136,271 $ 447,469 $(1,011,459) $ (149,382) $ 1,479,052 =========== =========== ========== =========== =========== Allocation of net income (loss): Managing general partner $ 21,363 $ 4,475 $ (10,115) $ (1,494) $ 14,790 =========== =========== ========== =========== =========== Limited partners $ 2,114,908 $ 442,994 $(1,001,344) $ (147,888) $ 1,464,262 =========== =========== ========== =========== =========== Limited partners' net income (loss) per limited partnership interest $ 65.55 $ 13.73 $ (31.04) $ (4.58) $ 45.38 =========== =========== ========== =========== =========== Limited partners' cash distributions per limited partnership interest $ 69.36 $ 22.83 $ 23.66 $ 52.38 $ 56.25 =========== =========== ========== =========== =========== At year end: ----------- Identifiable assets $ 5,144,391 $ 5,292,769 $ 5,585,045 $ 7,399,664 $ 9,230,704 =========== =========== ========== =========== ===========
4 1601 ITEM 7. MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 67% to $4,103,548 for 2000 as compared to $2,461,819 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 99,252 barrels of oil, 45,552 barrels of natural gas liquids ("NGLs") and 175,696 mcf of gas were sold, or 174,087 barrel of oil equivalents ("BOEs"). In 1999, 98,658 barrels of oil, 47,406 barrels of NGLs and 192,016 mcf of gas were sold, or 178,067 BOEs. 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 increased $12.00, or 70%, from $17.23 in 1999 to $29.23 in 2000. The average price received per barrel of NGLs increased $5.96, or 63%, from $9.49 in 1999 to $15.45 in 2000. The average price received per mcf of gas increased 75% from $1.62 in 1999 to $2.84 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $5,487 recognized in 2000 was due to equipment credits received on one fully depleted well. Total costs and expenses decreased in 2000 to $2,004,420 as compared to $2,029,978 in 1999, a decrease of $25,558, or 1%. The decrease was due to declines in the impairment of oil and gas properties and depletion, offset by increases in production costs and general and administrative expenses ("G&A"). Production costs were $1,511,223 in 2000 and $1,296,822 in 1999, resulting in an increase of $214,401, or 17%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 31% from $93,562 in 1999 to $122,731 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $109,474 in 2000 and $73,707 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 1602 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized non-cash charges of $86,231 and $240,063 related to its oil and gas properties during 2000 and 1999, respectively. Depletion was $284,235 in 2000 compared to $399,531 in 1999, representing a decrease of $115,296, or 29%. This decrease was primarily due to an 81,075 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 19% to $2,461,819 from $2,074,056 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 98,658 barrels of oil, 47,406 barrels of NGLs and 192,016 mcf of gas were sold, or 178,067 BOEs. In 1998, 111,585 barrels of oil, 47,190 barrels of NGLs and 199,215 mcf of gas were sold, or 191,978 BOEs. The average price received per barrel of oil increased $4.11, or 31%, from $13.12 in 1998 to $17.23 in 1999. The average price received per barrel of NGLs increased $2.89, or 44%, from $6.60 in 1998 to $9.49 in 1999. The average price received per mcf of gas increased 8% from $1.50 in 1998 to $1.62 in 1999. A gain on disposition of assets of $4,527 recognized during 1998 was due to credits received from the disposal of oil and gas equipment on one fully depleted well and one well that was plugged and abandoned in a prior year. Total costs and expenses decreased in 1999 to $2,029,978 as compared to $3,108,696 in 1998, a decrease of $1,078,718, or 35%. The decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $1,296,822 in 1999 and $1,403,494 in 1998, resulting in a $106,672 decrease, or 8%. The decrease was due to declines in well maintenance costs, ad valorem taxes and workover costs. During this period, G&A increased 29% from $72,284 in 1998 to $93,562 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $73,707 in 1999 and $62,152 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $240,063 and $744,642 related to its oil and gas properties during 1999 and 1998, respectively. 6 1603 Depletion was $399,531 in 1999 compared to $888,276 in 1998. This represented a decrease of $488,745, or 55%. This decrease was primarily due to an increase in proved reserves of 761,146 barrels of oil during 1999 due to higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 12,927 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $1,473,163 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $1,657,757 and a decline in working capital of $58,976, offset by increases in production costs paid of $214,401 and G&A expenses paid of $29,169. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $1,715,313 to oil and gas receipts, offset by $57,556 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on active oil and gas properties. Proceeds from disposition of assets of $5,487 recognized in 2000 were due to equipment credits received on one fully depleted well. 7 1604 Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $2,260,406, of which $22,604 was distributed to the managing general partner and $2,237,802 to the limited partners. In 1999, cash distributions to the partners were $744,104, of which $7,441 was distributed to the managing general partner and $736,663 to the limited partners. 8 1605 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 90-B, L.P.: Independent Auditors' Report......................................................... 10 Balance Sheets as of December 31, 2000 and 1999...................................... 11 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 12 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 13 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 14 Notes to Financial Statements........................................................ 15
9 1606 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 90-B, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 90-B, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90-B, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 10 1607 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ---------- ASSETS ------ Current assets: Cash $ 364,895 $ 311,017 Accounts receivable - oil and gas sales 568,283 441,577 ----------- ---------- Total current assets 933,178 752,594 ----------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 26,110,930 26,069,426 Accumulated depletion (21,899,717) (21,529,251) ----------- ---------- Net oil and gas properties 4,211,213 4,540,175 ----------- ---------- $ 5,144,391 $ 5,292,769 =========== ========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 42,091 $ 66,334 Partners' capital: Managing general partner 51,027 52,268 Limited partners (32,264 interests) 5,051,273 5,174,167 ----------- ---------- 5,102,300 5,226,435 ----------- ---------- $ 5,144,391 $ 5,292,769 =========== ==========
The accompanying notes are an integral part of these financial statements. 11 1608 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ---------- ---------- ---------- Revenues: Oil and gas $ 4,103,548 $ 2,461,819 $ 2,074,056 Interest 31,656 15,628 18,654 Gain on disposition of assets 5,487 - 4,527 ---------- ---------- ---------- 4,140,691 2,477,447 2,097,237 ---------- ---------- ---------- Costs and expenses: Oil and gas production 1,511,223 1,296,822 1,403,494 General and administrative 122,731 93,562 72,284 Impairment of oil and gas properties 86,231 240,063 744,642 Depletion 284,235 399,531 888,276 ---------- ---------- ---------- 2,004,420 2,029,978 3,108,696 ---------- ---------- ---------- Net income (loss) $ 2,136,271 $ 447,469 $(1,011,459) ========== ========== ========== Allocation of net income (loss): Managing general partner $ 21,363 $ 4,475 $ (10,115) ========= ========== ========== Limited partners $ 2,114,908 $ 442,994 $(1,001,344) ========== ========== ========== Net income (loss) per limited partnership interest $ 65.55 $ 13.73 $ (31.04) ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 12 1609 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- ---------- ---------- Partners' capital at January 1, 1998 $ 73,061 $ 7,232,631 $ 7,305,692 Distributions (7,712) (763,451) (771,163) Net loss (10,115) (1,001,344) (1,011,459) --------- ---------- ---------- Partners' capital at December 31, 1998 55,234 5,467,836 5,523,070 Distributions (7,441) (736,663) (744,104) Net income 4,475 442,994 447,469 --------- ---------- ---------- Partners' capital at December 31, 1999 52,268 5,174,167 5,226,435 Distributions (22,604) (2,237,802) (2,260,406) Net income 21,363 2,114,908 2,136,271 --------- ---------- ---------- Partners' capital at December 31, 2000 $ 51,027 $ 5,051,273 $ 5,102,300 ========= ========== ==========
The accompanying notes are an integral part of these financial statements. 13 1610 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ---------- ---------- ----------- Cash flows from operating activities: Net income (loss) $ 2,136,271 $ 447,469 $ (1,011,459) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 86,231 240,063 744,642 Depletion 284,235 399,531 888,276 Gain on disposition of assets (5,487) - (4,527) Changes in assets and liabilities: Accounts receivable (126,706) (214,284) 116,516 Accounts payable (24,243) 4,359 (31,997) ---------- ---------- ----------- Net cash provided by operating activities 2,350,301 877,138 701,451 ---------- ---------- ----------- Cash flows from investing activities: Additions to oil and gas properties (41,504) (33,486) (49,747) Proceeds from disposition of assets 5,487 - 4,527 ---------- ---------- ----------- Net cash used in investing activities (36,017) (33,486) (45,220) ---------- ---------- ----------- Cash flows used in financing activities: Cash distributions to partners (2,260,406) (744,104) (771,163) ---------- ---------- ----------- Net increase (decrease) in cash 53,878 99,548 (114,932) Cash at beginning of year 311,017 211,469 326,401 ---------- ---------- ----------- Cash at end of year $ 364,895 $ 311,017 $ 211,469 ========== ========== ===========
The accompanying notes are an integral part of these financial statements. 14 1611 PARKER & PARSLEY 90-B, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 15 1612 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $86,231, $240,063 and $744,642 related to its proved oil and gas properties during 2000, 1999 and 1998, respectively. 16 1613 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $632,807 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ------------ ------------ ------------- Net income (loss) per statements of operations $ 2,136,271 $ 447,469 $ (1,011,459) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 246,057 359,438 475,607 Impairment of oil and gas properties for financial reporting purposes 86,231 240,063 744,642 Other, net (4,768) (12,935) 11,120 ------------ ------------ ------------- Net income per Federal income tax returns $ 2,463,791 $ 1,034,035 $ 219,910 ============ ============ =============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- --------- Development costs $ 41,504 $ 33,486 $ 49,747 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ------------ ------------- Proved properties: Property acquisition costs $ 1,002,057 $ 1,002,057 Completed wells and equipment 25,108,873 25,067,369 ------------ ------------- 26,110,930 26,069,426 Accumulated depletion (21,899,717) (21,529,251) ------------ ------------- Net oil and gas properties $ 4,211,213 $ 4,540,175 ============ =============
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 572,323 $ 581,191 $ 568,275 --------- --------- --------- Reimbursement of general and administrative expenses $ 109,474 $ 73,707 $ 62,152
17 1614 The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and P&P Employees 90-B Conv., L.P. ("EMPL"), Parker & Parsley 90-B Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA(1) Partnerships(2) -------------- --------------- Revenues: Proceeds from disposition of depreciable and depletable properties First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 83 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 90-B Conv., L.P. is 73.05994% and 26.94006%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 2,481,201 2,344,959 Revisions (1,210,571) (517,240) Production (158,775) (199,215) ------------ ---------- Net proved reserves at December 31, 1998 1,111,855 1,628,504 Revisions 1,181,592 1,807,095 Production (146,064) (192,016) ------------ ---------- Net proved reserves at December 31, 1999 2,147,383 3,243,583 Revisions 46,430 (419,625) Production (144,804) (175,696) ------------ ---------- Net proved reserves at December 31, 2000 2,049,009 2,648,262 ============ ==========
18 1615 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.19 per barrel of NGLs and $7.66 per mcf of gas, discounted at 10% was approximately $15,617,000 and undiscounted was $31,632,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider probable reserves, anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (in thousands) Oil and gas producing activities: Future cash inflows $ 65,926 $ 52,962 $ 12,063 Future production costs (34,294) (29,776) (9,053) ---------- ---------- ---------- 31,632 23,186 3,010 10% annual discount factor (16,015) (11,296) (1,016) ---------- ---------- ---------- Standardized measure of discounted future net cash flows $ 15,617 $ 11,890 $ 1,994 ========== ========== ==========
For the years ended December 31, -------------------------------------- 2000 1999 1998 ----------- ----------- ---------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (2,592) $ (1,165) $ (671) Net changes in prices and production costs 5,824 5,796 (6,480) Revisions of previous quantity estimates (153) 8,478 (1,405) Accretion of discount 1,189 199 982 Changes in production rates, timing and other (541) (3,412) (254) ---------- ---------- --------- Change in present value of future net revenues 3,727 9,896 (7,828) ---------- ---------- --------- Balance, beginning of year 11,890 1,994 9,822 ---------- ---------- --------- Balance, end of year $ 15,617 $ 11,890 $ 1,994 ========== ========== =========
19 1616 NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 48% 46% - TEPPCO Crude Oil LLC 10% 11% - Genesis Crude Oil, L.P. - - 58% Western Gas Resources, Inc. 4% 5% 22% Phillips Petroleum Company 10% 5% 5%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., TEPPCO Crude Oil LLC and Phillips Petroleum Company were $177,462, $37,001 and $20,032, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The 20 1617 majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the Partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $32,264,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 1618 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 22 1619 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 23 1620 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 15% during the first three years and approximately 20% after three years of its operating and general and administrative expenses. In return, they are allocated approximately 15% during the first three years and approximately 20% after three years of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 83 limited partnership interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 24 1621
2000 1999 1998 -------- --------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 572,323 $ 581,191 $ 568,275 Reimbursement of general and administrative expenses $ 109,474 $ 73,707 $ 62,152
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 25 1622 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 26 1623 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 90-B, L.P. Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------ Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 28, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 28, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 28, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 28, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 28, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
27 1624 PARKER & PARSLEY 90-B, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Form of Agreement of Limited Partnership - of Parker & Parsley 90-B, L.P. incorporated by reference to Exhibit A of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of Limited Partner Subscription Agreement - incorporated by reference to Exhibit C of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of General Partner Subscription Agreement - incorporated by reference to Exhibit D of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Power of Attorney incorporated by reference to - Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 10(b) Form of Development Drilling Program - Agreement incorporated by reference to Exhibit B of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097)
28 1625 PARKER & PARSLEY 90-B, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- --------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ----------- ---------- ---------- Operating results: Oil and gas sales $2,069,524 $1,863,518 $4,103,548 $2,461,819 $ 2,074,056 $3,033,675 $3,748,608 ========== ========== ========== ========== =========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 86,231 $ 240,063 $ 744,642 $ 891,257 $ 61,080 ========== ========== ========== ========== =========== ========== ========== Net income (loss) $1,109,319 $ 928,864 $2,136,271 $ 447,469 $(1,011,459) $ (149,382) $1,479,052 ========== ========== ========== ========== =========== ========== ========== Allocation of net income (loss): Managing general partner $ 11,093 $ 9,289 $ 21,363 $ 4,475 $ (10,115) $ (1,494) $ 14,790 ========== ========== ========== ========== =========== ========== ========== Limited partners $1,098,226 $ 919,575 $2,114,908 $ 442,994 $(1,001,344) $ (147,888) $1,464,262 ========== ========== ========== ========== =========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 34.04 $ 28.50 $ 65.55 $ 13.73 $ (31.04) $ (4.58) $ 45.38 ========== ========== ========== ========== =========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 23.73 $ 30.18 $ 69.36 $ 22.83 $ 23.66 $ 52.38 $ 56.25 ========== ========== ========== ========== =========== ========== ========== As of period ended: Total assets $5,526,452 $5,273,176 $5,144,391 $5,292,769 $ 5,585,045 $7,399,664 $9,230,704 ========== ========== ========== ========== =========== ========== ==========
1626 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 90-C CONV., L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 --------- THE DATE OF THIS SUPPLEMENT IS , 2001 --------- This document contains important information specific to Parker & Parsley 90-C Conv., L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 90-C Conv., L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1627 PARKER & PARSLEY 90-C CONV., L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 7,531 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 4,950 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding $ 1,858 Pioneer USA(a),(b) Merger Value per $1,000 Limited Partner Investment(b),(c) $247.75 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.37 times the past four quarterly distributions including the distribution in July 2001(b),(c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $139.39 -- as of December 31, 2000(c) $132.75 Going Concern Value per $1,000 Limited Partner Investment(c),(d) $229.72 Liquidation Value per $1,000 Limited Partner Investment(c),(e) $240.43 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 149 (c),(f)
--------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2) (A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2040, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1628 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, 2001 Commission File No. 33-26097-10 PARKER & PARSLEY 90-C CONV., L.P. (Exact name of Registrant as specified in its charter) Delaware 75-2347264 ----------------------------------------- --------------------- (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 / / 1629 PARKER & PARSLEY 90-C CONV., L.P. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................. 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12
2 1630 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 221,203 $ 106,593 Accounts receivable - oil and gas sales 89,315 119,396 ---------- ---------- Total current assets 310,518 225,989 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,801,749 5,798,493 Accumulated depletion (5,028,486) (5,000,618) ---------- ---------- Net oil and gas properties 773,263 797,875 ---------- ---------- $ 1,083,781 $ 1,023,864 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 23,477 $ 14,074 Partners' capital: Managing general partner 10,572 10,067 Limited partners (7,531 interests) 1,049,732 999,723 ---------- ---------- 1,060,304 1,009,790 ---------- ---------- $ 1,083,781 $ 1,023,864 ========== ==========
The financial information included as of June 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 1631 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 213,193 $ 221,187 $ 444,118 $ 414,898 Interest 1,624 1,946 3,412 3,443 -------- -------- -------- -------- 214,817 223,133 447,530 418,341 -------- -------- -------- -------- Costs and expenses: Oil and gas production 97,643 77,437 193,283 161,148 General and administrative 6,504 7,156 14,679 13,090 Depletion 14,385 12,574 27,868 26,316 -------- -------- -------- -------- 118,532 97,167 235,830 200,554 -------- -------- -------- -------- Net income $ 96,285 $ 125,966 $ 211,700 $ 217,787 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 963 $ 1,260 $ 2,117 $ 2,178 ======== ======== ======== ======== Limited partners $ 95,322 $ 124,706 $ 209,583 $ 215,609 ======== ======== ======== ======== Net income per limited partnership interest $ 12.66 $ 16.56 $ 27.83 $ 28.63 ======== ======== ======== ========
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. 4 1632 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 10,067 $ 999,723 $1,009,790 Distributions (1,612) (159,574) (161,186) Net income 2,117 209,583 211,700 -------- --------- --------- Balance at June 30, 2001 $ 10,572 $1,049,732 $1,060,304 ======== ========= =========
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. 5 1633 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 211,700 $ 217,787 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 27,868 26,316 Changes in assets and liabilities: Accounts receivable 30,081 (13,427) Accounts payable 9,403 7,249 --------- --------- Net cash provided by operating activities 279,052 237,925 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (3,256) (15,344) Cash flows used in financing activities: Cash distributions to partners (161,186) (216,896) --------- --------- Net increase in cash 114,610 5,685 Cash at beginning of period 106,593 107,295 --------- --------- Cash at end of period $ 221,203 $ 112,980 ========= =========
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 1634 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 90-C Conv., L.P. (the "Partnership") was organized as a general partnership in 1990 under the laws of the State of Texas and was converted to a Delaware limited partnership on August 1, 1991. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 7% to $444,118 for the six months ended June 30, 2001 as compared to $414,898 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by 7 1635 a decline in production. For the six months ended June 30, 2001, 11,505 barrels of oil, 2,477 barrels of natural gas liquids ("NGLs") and 17,805 mcf of gas were sold, or 16,950 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 11,959 barrels of oil, 4,427 barrels of NGLs and 14,092 mcf of gas were sold, or 18,735 BOEs. The average price received per barrel of oil increased slightly from $27.46 for the six months ended June 30, 2000 to $27.55 for the same period in 2001. The average price received per barrel of NGLs increased $3.24, or 25%, from $12.80 during the six months ended June 30, 2000 to $16.04 for the same period in 2001. The average price received per mcf of gas increased 133% from $2.11 during the six months ended June 30, 2000 to $4.91 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $235,830 for the six months ended June 30, 2001 as compared to $200,554 for the same period in 2000, an increase of $35,276, or 18%. This increase was due to increases in production costs, general and administrative expenses ("G&A") and depletion. Production costs were $193,283 for the six months ended June 30, 2001 and $161,148 for the same period in 2000, resulting in a $32,135 increase, or 20%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 12% from $13,090 for the six months ended June 30, 2000 to $14,679 for the same period in 2001, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $27,868 for the six months ended June 30, 2001 as compared to $26,316 for the same period in 2000, an increase of $1,552, or 6%. This increase was the result of a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 454 barrels for the six months ended June 30, 2001 compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 4% to $213,193 for the three months ended June 30, 2001 as compared to $221,187 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 5,694 barrels of oil, 1,618 8 1636 barrels of NGLs and 9,654 mcf of gas were sold, or 8,921 BOEs. For the three months ended June 30, 2000, 6,157 barrels of oil, 2,484 barrels of NGLs and 7,658 mcf of gas were sold, or 9,917 BOEs. The average price received per barrel of oil decreased $.75, or 3%, from $27.75 for the three months ended June 30, 2000 to $27.00 for the same period in 2001. The average price received per barrel of NGLs increased $1.82, or 14%, from $12.68 during the three months ended June 30, 2000 to $14.50 for the same period in 2001. The average price received per mcf of gas increased 52% from $2.44 during the three months ended June 30, 2000 to $3.72 for the same period in 2001. Costs and Expenses: Total costs and expenses increased to $118,532 for the three months ended June 30, 2001 as compared to $97,167 for the same period in 2000, an increase of $21,365, or 22%. This increase was due to increases in production costs and depletion, offset by a decrease in G&A. Production costs were $97,643 for the three months ended June 30, 2001 and $77,437 for the same period in 2000, resulting in a $20,206 increase, or 26%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A decreased 9% from $7,156 for the three months ended June 30, 2000 to $6,504 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 a decline in oil and gas revenues and a decline in audit and tax fees. Depletion was $14,385 for the three months ended June 30, 2001 as compared to $12,574 for the same period in 2000, an increase of $1,811, or 14%. This increase was the result of a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 463 barrels for the three months ended June 30, 2001 compared to the same period in 2000. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $41,127 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to a reduction in working capital of $45,662 and an increase of $29,189 in oil and gas sales receipts, offset by increases in production costs of $32,135 and G&A expenses of $1,589. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $54,741 to oil and gas receipts, offset by $25,552 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. 9 1637 Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for oil and gas equipment upgrades on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $161,186, of which $1,612 was distributed to the managing general partner and $159,574 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $216,896, of which $2,169 was distributed to the managing general partner and $214,727 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1638 --------------- (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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Form 8-K - none 11 1639 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) SIGNATURES 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 90-C CONV., L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy -------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1640 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-26097-10 PARKER & PARSLEY 90-C CONV., L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2347264 ------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $7,501,000. As of March 8, 2001, the number of outstanding limited partnership interests was 7,531. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1641 PART I ITEM 1. BUSINESS Parker & Parsley 90-C Conv., L.P. (the "Partnership") is a general partnership organized in 1990 under the laws of the State of Texas. The Partnership converted to a Delaware limited partnership on August 1, 1991. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 7,531 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 64% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 1642 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 44 oil and gas wells. One well was sold and one well was plugged and abandoned due to uneconomical operations. At December 31, 2000, the Partnership had 42 producing oil and gas wells. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1643 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 7,531 outstanding limited partnership interests held of record by 505 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $492,300 and $135,825, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Operating results: ----------------- Oil and gas sales $ 917,184 $ 537,893 $ 430,499 $ 661,475 $ 837,849 =========== =========== =========== =========== =========== Impairment of oil and gas properties $ - $ - $ 185,784 $ 79,288 $ - =========== =========== =========== =========== =========== Net income (loss) $ 509,518 $ 137,106 $ (258,625) $ 105,740 $ 359,349 =========== =========== =========== =========== =========== Allocation of net income (loss): Managing general partner $ 5,095 $ 1,371 $ (2,586) $ 1,057 $ 3,593 =========== =========== =========== =========== =========== Limited partners $ 504,423 $ 135,735 $ (256,039) $ 104,683 $ 355,756 =========== =========== =========== =========== =========== Limited partners' net income (loss) per limited partnership interest $ 66.98 $ 18.02 $ (34.00) $ 13.90 $ 47.24 =========== =========== =========== =========== =========== Limited partners' cash distributions per limited partnership interest $ 65.37 $ 18.04 $ 17.30 $ 47.53 $ 51.98 =========== =========== =========== =========== =========== At year end: ----------- Identifiable assets $ 1,023,864 $ 1,014,263 $ 1,011,034 $ 1,411,804 $ 1,661,127 =========== =========== =========== =========== ===========
4 1644 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 71% to $917,184 for 2000 as compared to $537,893 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 23,602 barrels of oil, 9,171 barrels of natural gas liquids ("NGLs") and 30,423 mcf of gas were sold, or 37,844 barrel of oil equivalents ("BOEs"). In 1999, 23,568 barrels of oil, 9,050 barrels of NGLs and 29,399 mcf of gas were sold, or 37,518 BOEs. 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 increased $12.21, or 71%, from $17.13 in 1999 to $29.34 in 2000. The average price received per barrel of NGLs increased $5.60, or 60%, from $9.31 in 1999 to $14.91 in 2000. The average price received per mcf of gas increased 70% from $1.70 in 1999 to $2.89 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to continue in the foreseeable future. The Partnership may therefore sell its future oil and gas production at average prices lower or higher than received in 2000. Gains on dispositions of assets of $388 and $104 recognized during 2000 and 1999, respectively, were due to equipment credits received on a fully depleted well in each year. Total costs and expenses increased in 2000 to $416,488 compared to $405,150 in 1999, an increase of $11,338, or 3%. This increase was due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $334,055 in 2000 and $297,353 in 1999, resulting in an increase of $36,702, or 12%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period G&A increased 45% from $20,987 in 1999 to $30,429 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $27,439 in 2000 and $16,060 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 1645 Depletion was $52,004 in 2000 as compared to $86,810 in 1999, representing a decrease of $34,806, or 40%. This decrease was primarily due to a 31,374 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 25% to $537,893 from $430,499 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 23,568 barrels of oil, 9,050 barrels of NGLs and 29,399 mcf of gas were sold, or 37,518 BOEs. In 1998, 24,493 barrels of oil, 8,694 barrels of NGLs and 30,348 mcf of gas were sold, or 38,245 BOEs. The average price received per barrel of oil increased $3.89, or 29%, from $13.24 in 1998 to $17.13 in 1999. The average price received per barrel of NGLs increased $2.51, or 37%, from $6.80 in 1998 to $9.31 in 1999. The average price received per mcf of gas increased 10% from $1.55 in 1998 to $1.70 in 1999. Total costs and expenses decreased in 1999 to $405,150 compared to $693,871 in 1998, a decrease of $288,721, or 42%. This decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $297,353 in 1999 and $314,363 in 1998, resulting in a decrease of $17,010, or 5%. The decrease was due to declines in well maintenance costs and ad valorem taxes, offset by an increase in production taxes. During this period G&A increased 39% from $15,084 in 1998 to $20,987 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $16,060 in 1999 and $12,838 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $185,784 related to its oil and gas properties during 1998. Depletion was $86,810 in 1999 compared to $178,640 in 1998. This represented a decrease of $91,830, or 51%. This decrease was primarily the result of an increase in proved reserves of 207,077 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. 6 1646 Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $330,268 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $383,466, offset by increases in production costs paid of $36,702, G&A expenses paid of $9,442 and working capital of $7,054. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $377,706 to oil and gas receipts and $5,760 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 included expenditures related to equipment upgrades on active oil and gas properties. Proceeds from dispositions of assets of $388 and $104 recognized during 2000 and 1999, respectively, were related to equipment credits received on a fully depleted well in each year. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $497,273, of which $4,973 was distributed to the managing general partner and $492,300 to the limited partners. In 1999, cash distributions to the partners were $137,197, of which $1,372 was distributed to the managing general partner and $135,825 to the limited partners. 7 1647 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 90-C Conv., L.P: Independent Auditors' Report.......................................... 9 Balance Sheets as of December 31, 2000 and 1999....................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................. 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998.................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................. 13 Notes to Financial Statements......................................... 14
8 1648 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 90-C Conv., L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 90-C Conv., L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90-C Conv., L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 1649 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ------------- ------------ ASSETS ------ Current assets: Cash $ 106,593 $ 107,295 Accounts receivable - oil and gas sales 119,396 79,853 ------------- ------------ Total current assets 225,989 187,148 ------------- ------------ Oil and gas properties - at cost, based on the successful efforts accounting method 5,798,493 5,775,729 Accumulated depletion (5,000,618) (4,948,614) ------------- ------------ Net oil and gas properties 797,875 827,115 ------------- ------------ $ 1,023,864 $ 1,014,263 ============= ============ LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 14,074 $ 16,718 Partners' capital: Managing general partner 10,067 9,945 Limited partners (7,531 interests) 999,723 987,600 ------------- ------------ 1,009,790 997,545 ------------- ------------ $ 1,023,864 $ 1,014,263 ============= ============
The accompanying notes are an integral part of these financial statements. 10 1650 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 917,184 $ 537,893 $ 430,499 Interest 8,434 4,259 4,747 Gain on disposition of assets 388 104 - ---------- ---------- ---------- 926,006 542,256 435,246 ---------- ---------- ---------- Costs and expenses: Oil and gas production 334,055 297,353 314,363 General and administrative 30,429 20,987 15,084 Impairment of oil and gas properties - - 185,784 Depletion 52,004 86,810 178,640 ---------- ---------- ---------- 416,488 405,150 693,871 ---------- ---------- ---------- Net income (loss) $ 509,518 $ 137,106 $ (258,625) ========== ========== ========== Allocation of net income (loss): Managing general partner $ 5,095 $ 1,371 $ (2,586) ========== ========== ========== Limited partners $ 504,423 $ 135,735 $ (256,039) ========== ========== ========== Net income (loss) per limited partnership interest $ 66.98 $ 18.02 $ (34.00) ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 11 1651 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ------------- ------------- ------------- Partners' capital at January 1, 1998 $ 13,848 $ 1,374,010 $ 1,387,858 Distributions (1,316) (130,281) (131,597) Net loss (2,586) (256,039) (258,625) ----------- ------------ ------------ Partners' capital at December 31, 1998 9,946 987,690 997,636 Distributions (1,372) (135,825) (137,197) Net income 1,371 135,735 137,106 ----------- ------------ ------------ Partners' capital at December 31, 1999 9,945 987,600 997,545 Distributions (4,973) (492,300) (497,273) Net income 5,095 504,423 509,518 ----------- ------------ ------------ Partners' capital at December 31, 2000 $ 10,067 $ 999,723 $ 1,009,790 =========== ============ ============
The accompanying notes are an integral part of these financial statements. 12 1652 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------------ ------------- ------------- Cash flows from operating activities: Net income (loss) $ 509,518 $ 137,106 $ (258,625) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 185,784 Depletion 52,004 86,810 178,640 Gain on disposition of assets (388) (104) - Changes in assets and liabilities: Accounts receivable (39,543) (38,453) 28,491 Accounts payable (2,644) 3,320 (10,548) ----------- ------------ ------------ Net cash provided by operating activities 518,947 188,679 123,742 ----------- ------------ ------------ Cash flows from investing activities: Additions to oil and gas properties (22,764) (10,512) (13,347) Proceeds from disposition of assets 388 104 - ----------- ------------ ------------ Net cash used in investing activities (22,376) (10,408) (13,347) ----------- ------------ ------------ Cash flows used in financing activities: Cash distributions to partners (497,273) (137,197) (131,597) ----------- ------------ ------------ Net increase (decrease) in cash (702) 41,074 (21,202) Cash at beginning of year 107,295 66,221 87,423 ----------- ------------ ------------ Cash at end of year $ 106,593 $ 107,295 $ 66,221 =========== ============ ============
The accompanying notes are an integral part of these financial statements. 13 1653 PARKER & PARSLEY 90-C CONV., L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 90-C Conv., L.P. (the "Partnership") is a general partnership organized in 1990 under the laws of the State of Texas. The Partnership converted to a Delaware limited partnership on August 1, 1991. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income (loss) of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 1654 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $185,784 related to its proved oil and gas properties during 1998. 15 1655 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $49,618 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income (loss) per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------------- --------------- ------------- Net income (loss) per statements of operations $ 509,518 $ 137,106 $ (258,625) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 40,369 76,676 50,997 Impairment of oil and gas properties for financial reporting purposes - - 185,784 Intangible development costs capitalized for financial reporting purposes and expensed for tax reporting purposes (385) - - Other, net (1,143) (1,786) 1,870 ------------- -------------- ------------ Net income (loss) per Federal income tax returns $ 548,359 $ 211,996 $ (19,974) ============= ============== ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ------------- ------------ ------------ Development costs $ 22,764 $ 10,512 $ 13,347 ============ =========== ===========
Capitalized oil and gas properties consist of the following:
2000 1999 ------------ ------------ Proved properties: Property acquisition costs $ 226,701 $ 226,701 Completed wells and equipment 5,571,792 5,549,028 ----------- ----------- 5,798,493 5,775,729 Accumulated depletion (5,000,618) (4,948,614) ----------- ----------- Net oil and gas properties $ 797,875 $ 827,115 =========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 16 1656
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 130,806 $ 126,701 $ 124,074 Reimbursement of general and administrative expenses $ 27,439 $ 16,060 $ 12,838
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 90-C Conv., L.P. ("EMPL"), Parker & Parsley 90-C, L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships (2) --------------- ---------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 30 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 90-C, L.P. is 38.349119% and 61.650881%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table represents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 17 1657
Oil and NGLs Gas (bbls) (mcf) ------------ ---------- Net proved reserves at January 1, 1998 424,601 426,720 Revisions (204,124) (171,338) Production (33,187) (30,348) ---------- ---------- Net proved reserves at December 31, 1998 187,290 225,034 Revisions 293,912 357,964 Production (32,618) (29,399) ---------- ---------- Net proved reserves at December 31, 1999 448,584 553,599 Revisions 50,848 (55,441) Production (32,773) (30,423) ---------- ---------- Net proved reserves at December 31, 2000 466,659 467,735 ========== ==========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.22 per barrel of NGLs and $7.80 per mcf of gas, discounted at 10% was approximately $3,245,000 and undiscounted was $6,366,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, --------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ (in thousands) Oil and gas producing activities: Future cash inflows $ 14,206 $ 11,167 $ 2,041 Future production costs (7,840) (6,472) (1,624) ------------ ------------ ------------ 6,366 4,695 417 10% annual discount factor (3,121) (2,211) (116) ------------ ------------ ------------ Standardized measure of discounted future net cash flows $ 3,245 $ 2,484 $ 301 ============ ============ ============
18 1658
For the years ended December 31, --------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (583) $ (241) $ (116) Net changes in prices and production costs 932 1,084 (1,115) Revisions of previous quantity estimates 257 2,216 (238) Accretion of discount 248 30 167 Changes in production rates, timing and other (93) (906) (65) ------------ ------------ ------------ Change in present value of future net revenues 761 2,183 (1,367) ------------ ------------ ------------ Balance, beginning of year 2,484 301 1,668 ------------ ------------ ------------ Balance, end of year $ 3,245 $ 2,484 $ 301 ============ ============ ============
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 64% 62% - Genesis Crude Oil, L.P. - - 69% Western Gas Resources, Inc. 2% 3% 13%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $48,722 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the Partnership agreement, the managing general partner pays 19 1659 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $7,531,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 1660 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 1661 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 1662 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 15% during the first three years and approximately 20% after three years of its operating and general and administrative expenses. In return, they are allocated approximately 15% during the first three years and approximately 20% after three years of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 30 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 23 1663
2000 1999 1998 ------------- ------------- ------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 130,806 $ 126,701 $ 124,074 Reimbursement of general and administrative expenses $ 27,439 $ 16,060 $ 12,838
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 1664 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 1665 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 90-C CONV., L.P. Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------ Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 26, 2001 -------------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001 -------------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001 -------------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 26, 2001 -------------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 26, 2001 -------------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 26, 2001 -------------------------------------- Officer of Pioneer USA Rich Dealy
26 1666 PARKER & PARSLEY 90-C CONV., L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Form of Agreement of Limited Partnership - of Parker & Parsley 90-C Conv., L.P. incorporated by reference to Exhibit A of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of Limited Partner Subscription Agreement - incorporated by reference to Exhibit C of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of General Partner Subscription Agreement - incorporated by reference to Exhibit D of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Power of Attorney incorporated by reference to - Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 10(b) Form of Development Drilling Program - Agreement incorporated by reference to Exhibit B of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097)
27 1667 PARKER & PARSLEY 90-C CONV., L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 444,118 $ 414,898 $ 917,184 $ 537,893 $ 430,499 $ 661,475 $ 837,849 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 185,784 $ 79,288 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 211,700 $ 217,787 $ 509,518 $ 137,106 $ (258,625) $ 105,740 $ 359,349 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 2,117 $ 2,178 $ 5,095 $ 1,371 $ (2,586) $ 1,057 $ 3,593 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 209,583 $ 215,609 $ 504,423 $ 135,735 $ (256,039) $ 104,683 $ 355,756 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 27.83 $ 28.63 $ 66.98 $ 18.02 $ (34.00) $ 13.90 $ 47.24 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 21.19 $ 28.51 $ 65.37 $ 18.04 $ 17.30 $ 47.53 $ 51.98 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,083,781 $1,022,403 $1,023,864 $1,014,263 $1,011,034 $1,411,804 $1,661,127 ========== ========== ========== ========== ========== ========== ==========
1668 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 90-C, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 90-C, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 90-C, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1669 PARKER & PARSLEY 90-C, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 12,107 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 7,958 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 2,984 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 247.05 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for 3.36 times the past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 138.59 -- as of December 31, 2000(c) $ 131.96 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 229.02 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 239.73 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 149
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2039, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1670 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, 2001 Commission File No. 33-26097-09 PARKER & PARSLEY 90-C, L.P. (Exact name of Registrant as specified in its charter) Delaware 75-2347262 ----------------------------------------- --------------------- (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 / / 1671 PARKER & PARSLEY 90-C, L.P. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................. 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12 2 1672 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 346,965 $ 162,620 Accounts receivable - oil and gas sales 143,592 191,950 ---------- ---------- Total current assets 490,557 354,570 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,327,018 9,321,783 Accumulated depletion (8,084,866) (8,040,111) ---------- ---------- Net oil and gas properties 1,242,152 1,281,672 ---------- ---------- $ 1,732,709 $ 1,636,242 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 37,845 $ 22,567 Partners' capital: Managing general partner 16,899 16,087 Limited partners (12,107 interests) 1,677,965 1,597,588 ---------- ---------- 1,694,864 1,613,675 ---------- ---------- $ 1,732,709 $ 1,636,242 ========== ==========
The financial information included as of June 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 1673 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 342,737 $ 355,412 $ 713,977 $ 666,799 Interest 2,505 3,011 5,313 5,335 -------- -------- -------- --------- 345,242 358,423 719,290 672,134 -------- -------- -------- -------- Costs and expenses: Oil and gas production 156,985 124,494 310,730 259,060 General and administrative 10,457 11,499 23,553 21,038 Depletion 23,106 20,219 44,755 42,327 -------- -------- -------- -------- 190,548 156,212 379,038 322,425 -------- -------- -------- -------- Net income $ 154,694 $ 202,211 $ 340,252 $ 349,709 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,547 $ 2,022 $ 3,403 $ 3,497 ======== ======== ======== ======== Limited partners $ 153,147 $ 200,189 $ 336,849 $ 346,212 ======== ======== ======== ======== Net income per limited partnership interest $ 12.65 $ 16.54 $ 27.82 $ 28.60 ======== ======== ======== ========
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. 4 1674 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 16,087 $1,597,588 $1,613,675 Distributions (2,591) (256,472) (259,063) Net income 3,403 336,849 340,252 -------- --------- --------- Balance at June 30, 2001 $ 16,899 $1,677,965 $1,694,864 ======== ========= =========
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. 5 1675 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 340,252 $ 349,709 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 44,755 42,327 Changes in assets and liabilities: Accounts receivable 48,358 (21,390) Accounts payable 15,278 11,754 --------- --------- Net cash provided by operating activities 448,643 382,400 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (5,235) (24,668) Cash flows used in financing activities: Cash distributions to partners (259,063) (348,687) --------- --------- Net increase in cash 184,345 9,045 Cash at beginning of period 162,620 164,100 --------- --------- Cash at end of period $ 346,965 $ 173,145 ========= =========
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 1676 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 90-C, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 7% to $713,977 for the six months ended June 30, 2001 as compared to $666,799 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by a decline in production. For the six months ended June 30, 2001, 18,497 barrels 7 1677 of oil, 3,982 barrels of natural gas liquids ("NGLs") and 28,625 mcf of gas were sold, or 27,250 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 19,227 barrels of oil, 7,105 barrels of NGLs and 22,664 mcf of gas were sold, or 30,109 BOEs. The average price received per barrel of oil increased slightly from $27.46 for the six months ended June 30, 2000 to $27.55 for the same period in 2001. The average price received per barrel of NGLs increased $3.24, or 25%, from $12.80 during the six months ended June 30, 2000 to $16.04 for the same period in 2001. The average price received per mcf of gas increased 133% from $2.11 during the six months ended June 30, 2000 to $4.91 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $379,038 for the six months ended June 30, 2001 as compared to $322,425 for the same period in 2000, an increase of $56,613, or 18%. This increase was due to increases in production costs, general and administrative expenses ("G&A") and depletion. Production costs were $310,730 for the six months ended June 30, 2001 and $259,060 for the same period in 2000, resulting in a $51,670 increase, or 20%. This increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 12% from $21,038 for the six months ended June 30, 2000 to $23,553 for the same period in 2001, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $44,755 for the six months ended June 30, 2001 as compared to $42,327 for the same period in 2000, an increase of $2,428, or 6%. This increase was the result of a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 730 barrels for the six months ended June 30, 2001 compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 4% to $342,737 for the three months ended June 30, 2001 as compared to $355,412 for the same period in 2000. The decrease in revenues resulted from a decline in production and lower average prices received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 9,158 barrels of oil, 2,603 barrels of NGLs and 15,519 mcf of gas were sold, or 14,348 BOEs. For the three 8 1678 months ended June 30, 2000, 9,904 barrels of oil, 3,979 barrels of NGLs and 12,323 mcf of gas were sold, or 15,937 BOEs. The average price received per barrel of oil decreased $.75, or 3%, from $27.75 for the three months ended June 30, 2000 to $27.00 for the same period in 2001. The average price received per barrel of NGLs increased $1.82, or 14%, from $12.68 during the three months ended June 30, 2000 to $14.50 for the same period in 2001. The average price received per mcf of gas increased 52% from $2.44 during the three months ended June 30, 2000 to $3.72 for the same period in 2001. Costs and Expenses: Total costs and expenses increased to $190,548 for the three months ended June 30, 2001 as compared to $156,212 for the same period in 2000, an increase of $34,336, or 22%. This increase was due to increases in production costs and depletion, offset by a decrease in G&A. Production costs were $156,985 for the three months ended June 30, 2001 and $124,494 for the same period in 2000, resulting in a $32,491 increase, or 26%. The increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A decreased 9% from $11,499 for the three months ended June 30, 2000 to $10,457 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 a decline in oil and gas revenues and a decrease in audit and tax fees. Depletion was $23,106 for the three months ended June 30, 2001 as compared to $20,219 for the same period in 2000, an increase of $2,887, or 14%. This increase was the result of a reduction in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decline in oil production of 746 barrels for the three months ended June 30, 2001 compared to the same period in 2000. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $66,243 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to a reduction in working capital of $73,272 and an increase of $47,156 in oil and gas sales receipts, offset by increases in production costs of $51,670 and G&A expenses of $2,515. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $88,093 to oil and gas receipts, offset by $40,937 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production and higher production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. 9 1679 Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for upgrades of oil and gas equipment on active properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $259,063, of which $2,591 was distributed to the managing general partner and $256,472 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $348,687, of which $3,487 was distributed to the managing general partner and $345,200 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1680 --------------- (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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Form 8-K - none 11 1681 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) SIGNATURES 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 90-C, L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 7, 2001 By: /s/ Rich Dealy -------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1682 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-26097-09 PARKER & PARSLEY 90-C, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2347262 -------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------ (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $12,080,000. As of March 8, 2001, the number of outstanding limited partnership interests was 12,107. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None Parts I and II of this annual report on Form 10-K (the "Report") contain 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. See "Item 1. Business" for a description of various factors that could materially affect the ability of the Partnership to achieve the anticipated results described in the forward looking statements. 1683 PART I ITEM 1. BUSINESS Parker & Parsley 90-C, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 12,107 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 64% was attributable to sales made to Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial liability due to pollution and other environmental damages. Although the Partnership believes that 2 1684 its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 44 oil and gas wells. One well was sold and one well was plugged and abandoned due to uneconomical operations. At December 31, 2000, the Partnership had 42 producing oil and gas wells. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1685 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 12,107 outstanding limited partnership interests held of record by 901 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $791,434 and $218,354, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ----------- Operating results: ----------------- Oil and gas sales $1,474,499 $ 864,722 $ 692,090 $1,063,396 $ 1,346,937 ========== ========== ========== ========== =========== Impairment of oil and gas properties $ -- $ -- $ 298,622 $ 127,213 $ -- ========== ========== ========== ========== =========== Net income (loss) $ 818,778 $ 220,855 $ (416,064) $ 168,261 $ 577,803 ========== ========== ========== ========== =========== Allocation of net income (loss): Managing general partner $ 8,188 $ 2,209 $ (4,161) $ 1,683 $ 5,778 ========== ========== ========== ========== =========== Limited partners $ 810,590 $ 218,646 $ (411,903) $ 166,578 $ 572,025 ========== ========== ========== ========== =========== Limited partners' net income (loss) per limited partnership interest $ 66.95 $ 18.06 $ (34.02) $ 13.76 $ 47.25 ========== ========== ========== ========== =========== Limited partners' cash distributions per limited partnership interest $ 65.37 $ 18.04 $ 17.30 $ 47.53 $ 51.98 ========== ========== ========== ========== =========== At year end: ------------- Identifiable assets $1,636,242 $1,621,156 $1,617,114 $2,261,689 $ 2,664,141 ========== ========== ========== ========== ===========
4 1686 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 71% to $1,474,499 for 2000 as compared to $864,722 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 37,944 barrels of oil, 14,742 barrels of natural gas liquids ("NGLs") and 48,907 mcf of gas were sold, or 60,837 barrel of oil equivalents ("BOEs"). In 1999, 37,886 barrels of oil, 14,547 barrels of NGLs and 47,265 mcf of gas were sold, or 60,311 BOEs. 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 increased $12.21, or 71%, from $17.13 in 1999 to $29.34 in 2000. The average price received per barrel of NGLs increased $5.60, or 60%, from $9.31 in 1999 to $14.91 in 2000. The average price received per mcf of gas increased 70% from $1.70 in 1999 to $2.89 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gains on disposition of assets of $624 and $167 recognized during 2000 and 1999, respectively, were due to equipment credits received on a fully depleted well in each year. Total costs and expenses increased in 2000 to $669,449 as compared to $650,544 in 1999, an increase of $18,905, or 3%. This increase was due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $537,048 in 2000 and $477,835 in 1999, resulting in an increase of $59,213, or 12%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period G&A increased 47% from $33,223 in 1999 to $48,801 in 2000 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $44,112 in 2000 and $25,818 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 5 1687 Depletion was $83,600 in 2000 compared to $139,486 in 1999, representing a decrease of $55,886, or 40%. This decrease was primarily due to a 50,718 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 25% to $864,722 from $692,090 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 37,886 barrels of oil, 14,547 barrels of NGLs and 47,265 mcf of gas were sold, or 60,311 BOEs. In 1998, 39,380 barrels of oil, 13,978 barrels of NGLs and 48,787 mcf of gas were sold, or 61,489 BOEs. The average price received per barrel of oil increased $3.89, or 29%, from $13.24 in 1998 to $17.13 in 1999. The average price received per barrel of NGLs increased $2.51, or 37%, from $6.80 in 1998 to $9.31 in 1999. The average price received per mcf of gas increased 10% from $1.55 in 1998 to $1.70 in 1999. Total costs and expenses decreased in 1999 to $650,544 as compared to $1,115,454 in 1998, a decrease of $464,910, or 42%. This decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $477,835 in 1999 and $505,571 in 1998, resulting in a $27,736 decrease, or 5%. The decrease was due to declines in well maintenance costs and ad valorem taxes, offset by an increase in production taxes During this period G&A increased 37% from $24,190 in 1998 to $33,223 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $25,818 in 1999 and $20,639 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $298,622 related to its oil and gas properties during 1998. Depletion was $139,486 in 1999 compared to $287,071 in 1998. This represented a decrease of $147,585, or 51%. This decrease was primarily the result of an increase in proved reserves of 332,733 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, 6 1688 weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $532,008 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $616,371, offset by increases in production costs paid of $59,213, G&A expenses paid of $15,578 and working capital of $9,572. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $607,017 to oil and gas receipts and an increase of $9,354 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 included expenditures related to equipment upgrades on active oil and gas properties. Proceeds from disposition of assets of $624 and $167 recognized during 2000 and 1999, respectively, were related to equipment credits received on a fully depleted well in each year. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $799,428, of which $7,994 was distributed to the managing general partner and $791,434 to the limited partners. In 1999, cash distributions to the partners were $220,560, of which $2,206 was distributed to the managing general partner and $218,354 to the limited partners. 7 1689 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 90-C, L.P.: Independent Auditors' Report......................................................... 9 Balance Sheets as of December 31, 2000 and 1999...................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998................................................................ 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998................................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998................................................................ 13 Notes to Financial Statements........................................................ 14
8 1690 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 90-C, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 90-C, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90-C, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 1691 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------------- ---------------- ASSETS ------ Current assets: Cash $ 162,620 $ 164,100 Accounts receivable - oil and gas sales 191,950 128,379 --------- --------- Total current assets 354,570 292,479 --------- --------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,321,783 9,285,188 Accumulated depletion (8,040,111) (7,956,511) --------- --------- Net oil and gas properties 1,281,672 1,328,677 --------- --------- $ 1,636,242 $ 1,621,156 ========= ========= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 22,567 $ 26,831 Partners' capital: Managing general partner 16,087 15,893 Limited partners (12,107 interests) 1,597,588 1,578,432 --------- --------- 1,613,675 1,594,325 $ 1,636,242 $ 1,621,156 ========= =========
The accompanying notes are an integral part of these financial statements. 10 1692 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 1,474,499 $ 864,722 $ 692,090 Interest 13,104 6,510 7,300 Gain on disposition of assets 624 167 -- ----------- ----------- ----------- 1,488,227 871,399 699,390 ----------- ----------- ----------- Costs and expenses: Oil and gas production 537,048 477,835 505,571 General and administrative 48,801 33,223 24,190 Impairment of oil and gas properties -- -- 298,622 Depletion 83,600 139,486 287,071 ----------- ----------- ----------- 669,449 650,544 1,115,454 ----------- ----------- ----------- Net income (loss) $ 818,778 $ 220,855 $ (416,064) =========== =========== =========== Allocation of net income (loss): Managing general partner $ 8,188 $ 2,209 $ (4,161) =========== =========== =========== Limited partners $ 810,590 $ 218,646 $ (411,903) =========== =========== =========== Net income (loss) per limited partnership interest $ 66.95 $ 18.06 $ (34.02) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 11 1693 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------------- -------------- ---------------- Partners' capital at January 1, 1998 $ 22,166 $2,199,485 $2,221,651 Distributions (2,115) (209,442) (211,557) Net loss (4,161) (411,903) (416,064) ------- -------- -------- Partners' capital at December 31, 1998 15,890 1,578,140 1,594,030 Distributions (2,206) (218,354) (220,560) Net income 2,209 218,646 220,855 ------- -------- -------- Partners' capital at December 31, 1999 15,893 1,578,432 1,594,325 Distributions (7,994) (791,434) (799,428) Net income 8,188 810,590 818,778 ------- -------- -------- Partners' capital at December 31, 2000 $ 16,087 $1,597,588 $1,613,675 ======== ========= =========
The accompanying notes are an integral part of these financial statements. 12 1694 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------------ -------------- --------------- Cash flows from operating activities: Net income (loss) $ 818,778 $ 220,855 $(416,064) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 298,622 Depletion 83,600 139,486 287,071 Gain on disposition of assets (624) (167) - Changes in assets and liabilities: Accounts receivable (63,571) (62,010) 45,989 Accounts payable (4,264) 3,747 (16,954) ------- ------- ------- Net cash provided by operating activities 833,919 301,911 198,664 ------- ------- ------- Cash flows from investing activities: Additions to oil and gas properties (36,595) (16,900) (21,456) Proceeds from disposition of assets 624 167 - ------- ------- ------- Net cash used in investing activities (35,971) (16,733) (21,456) ------- ------- ------- Cash flows used in financing activities: Cash distributions to partners (799,428) (220,560) (211,557) -------- -------- -------- Net increase (decrease) in cash (1,480) 64,618 (34,349) Cash at beginning of year 164,100 99,482 133,831 ------- ------- ------- Cash at end of year $ 162,620 $ 164,100 $ 99,482 ======== ======== ========
The accompanying notes are an integral part of these financial statements. 13 1695 PARKER & PARSLEY 90-C, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 90-C, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income (loss) of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 1696 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $298,622 related to its proved oil and gas properties during 1998. 15 1697 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $81,171 less than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income (loss) per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 818,778 $ 220,855 $(416,064) Depletion and depreciation provisions for tax reporting purposes less than amounts for financial reporting purposes 64,630 123,267 81,152 Impairment of oil and gas properties for financial reporting purposes -- -- 298,622 Intangible development costs capitalized for financial reporting purposes and expensed for tax reporting purposes (619) -- -- Other, net (1,775) (4,424) 4,552 --------- --------- --------- Net income (loss) per Federal income tax return $ 881,014 $ 339,698 $ (31,738) ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ----------- ------------- -------------- Development costs $ 36,595 $ 16,900 $ 21,456 ======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 364,450 $ 364,450 Completed wells and equipment 8,957,333 8,920,738 ----------- ----------- 9,321,783 9,285,188 Accumulated depletion (8,040,111) (7,956,511) ----------- ----------- Net oil and gas properties $ 1,281,672 $ 1,328,677 =========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ------------ -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 210,287 $ 203,686 $ 199,461 Reimbursement of general and administrative expenses $ 44,112 $ 25,818 $ 20,639
16 1698 The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA and P&P Employees 90-C Conv., L.P. ("EMPL") (the "Entities"), Parker & Parsley 90-C Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnerships as follows:
Pioneer USA (1) Partnerships(2) --------------- --------------- Revenues: Proceeds from disposition of depreciable and depletable properties: First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues: First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses: First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 27 limited partner interests owned by Pioneer USA. (2) The allocation between the Partnership and Parker & Parsley 90-C Conv., L.P. is 61.650881% and 38.349119%, respectively. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------- ------------ Net proved reserves at January 1, 1998 682,212 685,617 Revisions (327,935) (275,264) Production (53,358) (48,787) -------- -------- Net proved reserves at December 31, 1998 300,919 361,566 Revisions 472,259 575,173 Production (52,433) (47,265) -------- -------- Net proved reserves at December 31, 1999 720,745 889,474 Revisions 82,135 (88,650) Production (52,686) (48,907) -------- -------- Net proved reserves at December 31, 2000 750,194 751,917 ======== ========
17 1699 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.22 per barrel of NGLs and $7.80 per mcf of gas, discounted at 10% was approximately $5,217,000 and undiscounted was $10,234,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ---------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 22,838 $ 17,942 $ 3,279 Future production costs (12,604) (10,399) (2,609) -------- -------- -------- 10,234 7,543 670 10% annual discount factor (5,017) (3,552) (187) -------- -------- -------- Standardized measure of discounted future net cash flows $ 5,217 $ 3,991 $ 483 ======== ======== ========
18 1700
For the years ended December 31, ---------------------------------------- 2000 1999 1998 -------- --------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (937) $ (387) $ (187) Net changes in prices and production costs 1,497 1,742 (1,792) Revisions of previous quantity estimates 417 3,560 (381) Accretion of discount 399 48 268 Changes in production rates, timing and other (150) (1,455) (105) -------- --------- -------- Change in present value of future net revenues 1,226 3,508 (2,197) -------- --------- -------- Balance, beginning of year 3,991 483 2,680 -------- --------- -------- Balance, end of year $ 5,217 $ 3,991 $ 483 ========= ========== =========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 64% 62% - Genesis Crude Oil, L.P. - - 69% Western Gas Resources, Inc. 2% 3% 13%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $78,327 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the Partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. 19 1701 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $12,107,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 1702 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 1703 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 1704 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by Pioneer USA, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 10% of the Program's acquisition, drilling and completion costs and approximately 15% during the first three years and approximately 20% after three years of its operating and general and administrative expenses. In return, they are allocated approximately 15% during the first three years and approximately 20% after three years of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers or employees of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 27 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 23 1705
2000 1999 1998 ------------- ------------- ------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 210,287 $ 203,686 $199,461 Reimbursement of general and administrative expenses $ 44,112 $ 25,818 $ 20,639
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 1706 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 1707 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 90-C, L.P. Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 26, 2001 ------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001 ------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001 ------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 26, 2001 ------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 26, 2001 ------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 26, 2001 ------------------------------- Officer of Pioneer USA Rich Dealy
26 1708 PARKER & PARSLEY 90-C, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Form of Agreement of Limited Partnership - of Parker & Parsley 90-C, L.P. incorporated by reference to Exhibit A of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of Limited Partner Subscription Agreement - incorporated by reference to Exhibit C of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Form of General Partner Subscription Agreement - incorporated by reference to Exhibit D of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(b) Power of Attorney incorporated by reference to - Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097) 10(b) Form of Development Drilling Program - Agreement incorporated by reference to Exhibit B of the Post-Effective Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-26097)
27 1709 PARKER & PARSLEY 90-C, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 713,977 $ 666,799 $1,474,499 $ 864,722 $ 692,090 $1,063,396 $1,346,937 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 298,622 $ 127,213 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 340,252 $ 349,709 $ 818,778 $ 220,855 $ (416,064) $ 168,261 $ 577,803 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,403 $ 3,497 $ 8,188 $ 2,209 $ (4,161) $ 1,683 $ 5,778 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 336,849 $ 346,212 $ 810,590 $ 218,646 $ (411,903) $ 166,578 $ 572,025 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 27.82 $ 28.60 $ 66.95 $ 18.06 $ (34.02) $ 13.76 $ 47.25 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 21.18 $ 28.51 $ 65.37 $ 18.04 $ 17.30 $ 47.53 $ 51.98 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,732,709 $1,633,932 $1,636,242 $1,621,156 $1,617,114 $2,261,689 $2,664,141 ========== ========== ========== ========== ========== ========== ==========
1710 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley Private Investment 90, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley Private Investment 90, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1711 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 10,970 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 9,030 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 3,360 USA(a), (b) Merger Value per $1,000 Limited Partner Investment(b),(c) $ 307.98 Merger Value per $1,000 Limited Partner Investment as a Multiple of 3.28 times Distributions for the past four quarterly distributions including the distribution in July 2001(b),(c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001(c) $ 163.59 -- as of December 31, 2000(c) $ 156.96 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 287.97 Liquidation Value per $1,000 Limited Partner Investment(c),(e) $ 298.81 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial $ 165 Investment(c),(f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2040, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1712 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1713 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 382,161 $ 168,054 Accounts receivable - oil and gas sales 136,254 197,750 ---------- ---------- Total current assets 518,415 365,804 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 8,474,146 8,464,366 Accumulated depletion (7,141,170) (7,073,249) ---------- ---------- Net oil and gas properties 1,332,976 1,391,117 ---------- ---------- $ 1,851,391 $ 1,756,921 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 34,418 $ 13,453 Partners' capital: Managing general partner 22,383 21,649 Limited partners (274.25 interests) 1,794,590 1,721,819 ---------- ---------- 1,816,973 1,743,468 ---------- ---------- $ 1,851,391 $ 1,756,921 ========== ==========
The financial information included as of June 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. 2 1714 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 325,097 $ 354,405 $ 722,006 $ 692,013 Interest 2,673 3,526 5,593 5,952 -------- -------- -------- -------- 327,770 357,931 727,599 697,965 -------- -------- -------- -------- Costs and expenses: Oil and gas production 141,149 125,781 261,648 238,333 General and administrative 8,129 11,169 19,906 21,297 Depletion 45,248 27,085 67,921 58,913 -------- -------- -------- -------- 194,526 164,035 349,475 318,543 -------- -------- -------- -------- Net income $ 133,244 $ 193,896 $ 378,124 $ 379,422 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,332 $ 1,939 $ 3,781 $ 3,794 ======== ======== ======== ======== Limited partners $ 131,912 $ 191,957 $ 374,343 $ 375,628 ======== ======== ======== ======== Net income per limited partnership interest $ 480.99 $ 699.94 $1,364.97 $1,369.66 ======== ======== ======== ========
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. 3 1715 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 21,649 $1,721,819 $1,743,468 Distributions (3,047) (301,572) (304,619) Net income 3,781 374,343 378,124 --------- --------- --------- Balance at June 30, 2001 $ 22,383 $1,794,590 $1,816,973 ========= ========= =========
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. 4 1716 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 378,124 $ 379,422 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 67,921 58,913 Changes in assets and liabilities: Accounts receivable 61,496 (32,670) Accounts payable 20,965 11,585 --------- --------- Net cash provided by operating activities 528,506 417,250 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties (9,780) (29,680) Cash flows used in financing activities: Cash distributions to partners (304,619) (367,336) --------- --------- Net increase in cash 214,107 20,234 Cash at beginning of period 168,054 174,341 --------- --------- Cash at end of period $ 382,161 $ 194,575 ========= =========
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. 5 1717 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley Private Investment 90, L.P. (the "Partnership") was organized in 1990 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1991. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 4% to $722,006 for the six months ended June 30, 2001 as compared to $692,013 for the same period in 2000. The increase in revenues resulted from higher average prices received, offset by 6 1718 a decrease in production. For the six months ended June 30, 2001, 17,815 barrels of oil, 4,772 barrels of natural gas liquids ("NGLs") and 29,299 mcf of gas were sold, or 27,470 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 19,734 barrels of oil, 6,946 barrels of NGLs and 24,989 mcf of gas were sold, or 30,845 BOEs. The average price received per barrel of oil increased $.36, or 1%, from $27.42 for the six months ended June 30, 2000 to $27.78 for the same period in 2001. The average price received per barrel of NGLs increased $3.03, or 22%, from $14.06 during the six months ended June 30, 2000 to $17.09 for the same period in 2001. The average price received per mcf of gas increased 132% from $2.14 during the six months ended June 30, 2000 to $4.97 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses increased to $349,475 for the six months ended June 30, 2001 as compared to $318,543 for the same period in 2000, an increase of $30,932, or 10%. This increase was due to higher production costs and depletion, offset by a decrease in general and administrative expenses ("G&A"). Production costs were $261,648 for the six months ended June 30, 2001 and $238,333 for the same period in 2000, resulting in a $23,315 increase, or 10%. The increase was the result of additional well maintenance and workover costs incurred to stimulate well production and higher production taxes due to higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 7%, from $21,297 for the six months ended June 30, 2000 to $19,906 for the same period in 2001, due to a decrease in audit and tax fees. Depletion was $67,921 for the six months ended June 30, 2001 as compared to $58,913 for the same period in 2000, an increase of $9,008, or 15%. The increase was the result of a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decrease in oil production of 1,919 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. 7 1719 Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 8% to $325,097 for the three months ended June 30, 2001 as compared to $354,405 for the same period in 2000. The decrease in revenues resulted from higher average prices received for gas and NGLs, offset by a decrease in production and lower average prices received for oil. For the three months ended June 30, 2001, 8,406 barrels of oil, 2,746 barrels of NGLs and 14,386 mcf of gas were sold, or 13,550 BOEs. For the three months ended June 30, 2000, 9,833 barrels of oil, 3,739 barrels of NGLs and 12,235 mcf of gas were sold, or 15,611 BOEs. The average price received per barrel of oil decreased $.32, or 1%, from $27.56 for the three months ended June 30, 2000 to $27.24 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.02, or 7%, from $14.06 during the three months ended June 30, 2000 to $15.08 for the same period in 2001. The average price received per mcf of gas increased 51% to $3.81 during the three months ended June 30, 2001 from $2.52 during the same period in 2000. Costs and Expenses: Total costs and expenses increased to $194,526 for the three months ended June 30, 2001 as compared to $164,035 for the same period in 2000, an increase of $30,491, or 19%. This increase was due to increases in depletion and production costs, offset by a decrease in G&A. Production costs were $141,149 for the three months ended June 30, 2001 and $125,781 for the same period in 2000 resulting in a $15,368 increase, or 12%. This increase was due to additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A decreased 27%, from $11,169 for the three months ended June 30, 2000 to $8,129 for the same period in 2001, primarily due to a lower allocation 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. Depletion was $45,248 for the three months ended June 30, 2001 as compared to $27,085 for the same period in 2000, an increase of $18,163, or 67%. This increase was attributable to a decrease in proved reserves during the period ended June 30, 2001 due to lower commodity prices, offset by a decrease in oil production of 1,427 barrels for the three months ended June 30, 2001 as compared to the same period in 2000. 8 1720 Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $111,256 during the six months ended June 30, 2001 from the same period ended June 30, 2000 This increase was due to an increase in oil and gas sales receipts of $29,634 and reductions in working capital of $103,546 and G&A expenses of $1,391, offset by an increase in production costs of $23,315. The increase in oil and gas receipts resulted from the increase in commodity prices during 2001 which contributed an additional $98,698 to oil and gas receipts, offset by $69,064 resulting from the decline in production during 2001 as compared to the same period in 2000. The increase in production costs was primarily due to additional well maintenance and workover costs incurred to stimulate well production and increased production taxes associated with higher oil and gas prices. The decrease in G&A was due to a decrease in audit and tax fees. Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 included expenditures related to equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $304,619, of which $3,047 was distributed to the managing general partner and $301,572 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $367,336, of which $3,674 was distributed to the managing general partner and $363,662 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. 9 1721 Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) 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. 10 1722 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1723 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley Private Investment 90, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley Private Investment 90, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley Private Investment 90, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1724 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 168,054 $ 174,341 Accounts receivable - oil and gas sales 197,750 117,410 ----------- ----------- Total current assets 365,804 291,751 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 8,464,366 8,438,988 Accumulated depletion (7,073,249) (6,916,963) ----------- ----------- Net oil and gas properties 1,391,117 1,522,025 ----------- ----------- $ 1,756,921 $ 1,813,776 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 13,453 $ 24,649 Partners' capital: Managing general partner 21,649 22,105 Limited partners (274.25 interests) 1,721,819 1,767,022 ----------- ----------- 1,743,468 1,789,127 ----------- ----------- $ 1,756,921 $ 1,813,776 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1725 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 1,508,541 $ 776,849 $ 648,378 Interest 14,348 7,221 9,116 Gain on disposition of assets 2,385 - - ----------- ----------- ----------- 1,525,274 784,070 657,494 ----------- ----------- ----------- Costs and expenses: Oil and gas production 502,676 379,923 481,924 General and administrative 41,729 29,997 20,196 Impairment of oil and gas properties 49,757 - 373,422 Depletion 106,529 143,268 224,780 ----------- ----------- ----------- 700,691 553,188 1,100,322 ----------- ----------- ----------- Net income (loss) $ 824,583 $ 230,882 $ (442,828) =========== =========== =========== Allocation of net income (loss): Managing general partner $ 8,246 $ 2,309 $ (4,428) =========== =========== =========== Limited partners $ 816,337 $ 228,573 $ (438,400) =========== =========== =========== Net income (loss) per limited partnership interest $ 2,976.62 $ 833.45 $ (1,598.54) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 4 1726 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 29,418 $ 2,491,033 $ 2,520,451 Distributions (2,635) (260,830) (263,465) Net loss (4,428) (438,400) (442,828) ----------- ----------- ----------- Partners' capital at December 31, 1998 22,355 1,791,803 1,814,158 Distributions (2,559) (253,354) (255,913) Net income 2,309 228,573 230,882 ----------- ----------- ----------- Partners' capital at December 31, 1999 22,105 1,767,022 1,789,127 Distributions (8,702) (861,540) (870,242) Net income 8,246 816,337 824,583 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 21,649 $ 1,721,819 $ 1,743,468 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 5 1727 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 824,583 $ 230,882 $(442,828) Adjustments to reconcile net income (loss)to net cash provided by operating activities: Impairment of oil and gas properties 49,757 - 373,422 Depletion 106,529 143,268 224,780 Gain on disposition of assets (2,385) - - Changes in assets and liabilities: Accounts receivable (80,340) (50,462) 48,403 Accounts payable (11,196) 4,017 (8,903) --------- --------- --------- Net cash provided by operating activities 886,948 327,705 194,874 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (25,378) (14,048) (11,793) Proceeds from asset dispositions 2,385 2,124 11,927 --------- --------- --------- Net cash provided by (used in) investing activities (22,993) (11,924) 134 --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (870,242) (255,913) (263,465) --------- --------- --------- Net increase (decrease) in cash (6,287) 59,868 (68,457) Cash at beginning of year 174,341 114,473 182,930 --------- --------- --------- Cash at end of year $ 168,054 $ 174,341 $ 114,473 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1728 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley Private Investment 90, L.P. (the "Partnership") was organized in 1990 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1991. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1729 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non- partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally discounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $49,757 and $373,422 related to its proved oil and gas properties during 2000 and 1998, respectively. 8 1730 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $139,996 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 824,583 $ 230,882 $(442,828) Depletion and depreciation for tax reporting purposes less than amounts for financial reporting purposes 93,056 131,771 204,399 Impairment of oil and gas properties for financial reporting purposes 49,757 - 373,422 Other, net (1,853) 432 13,939 --------- --------- --------- Net income per Federal income tax returns $ 965,543 $ 363,085 $ 148,932 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ---------- --------- ---------- Development costs $ 25,378 $ 14,048 $ 11,793 ========== ========= ==========
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 98,110 $ 98,110 Completed wells and equipment 8,366,256 8,340,878 ----------- ----------- 8,464,366 8,438,988 Accumulated depletion (7,073,249) (6,916,963) ----------- ----------- Net oil and gas properties $ 1,391,117 $ 1,522,025 =========== ===========
9 1731 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 --------- --------- --------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 186,568 $ 174,796 $ 187,435 Reimbursement of general and administrative expenses $ 37,554 $ 23,205 $ 16,483
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 90 Private Conv., L.P. ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- --------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------ --------- Net proved reserves at January 1, 1998 745,340 883,417 Revisions (342,345) (365,103) Production (49,468) (54,218) --------- --------- Net proved reserves at December 31, 1998 353,527 464,096 Revisions 394,885 538,864 Production (46,335) (47,331) --------- --------- Net proved reserves at December 31, 1999 702,077 955,629 Revisions 172,617 (96,553) Production (52,913) (49,484) --------- --------- Net proved reserves at December 31, 2000 821,781 809,592 ========= =========
10 1732 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.49 per barrel of NGLs and $7.81 per mcf of gas, discounted at 10% was approximately $5,749,000 and undiscounted was $12,495,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------------- 2000 1999 1998 --------- --------- --------- (in thousands) Oil and gas producing activities: Future cash inflows $ 25,174 $ 17,513 $ 3,860 Future production costs (12,679) (9,819) (3,004) --------- --------- --------- 12,495 7,694 856 10% annual discount factor (6,746) (3,770) (271) --------- --------- --------- Standardized measure of discounted future net cash flows $ 5,749 $ 3,924 $ 585 ========= ========= =========
11 1733
For the years ended December 31, ---------------------------------------- 2000 1999 1998 -------- -------- -------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,006) $ (397) $ (166) Net changes in prices and production costs 1,905 2,019 (1,974) Revisions of previous quantity estimates 1,043 2,961 (437) Accretion of discount 392 58 299 Changes in production rates, timing and other (509) (1,302) (128) -------- -------- -------- Change in present value of future net revenues 1,825 3,339 (2,406) -------- -------- -------- Balance, beginning of year 3,924 585 2,991 -------- -------- -------- Balance, end of year $ 5,749 $ 3,924 $ 585 ======== ======== ========
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 71% 69% - Genesis Crude Oil, L.P. - - 64% Western Gas Resources, Inc. 3% 4% 17%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was $93,082 which is included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the Partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. The managing general partner is also responsible for 1% of guaranty and loan commitment fees. In return, it is allocated 1% of the Partnership's revenues. 12 1734 Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $10,970,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less commission, organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent that its share of revenues does not cover such costs. 13 1735 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 94% to $1,508,541 for 2000 as compared to $776,849 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 39,040 barrels of oil, 13,873 barrels of natural gas liquids ("NGLs") and 49,484 mcf of gas were sold, or 61,160 barrel of oil equivalents ("BOEs"). In 1999, 32,789 barrels of oil, 13,546 barrels of NGLs and 47,331 mcf of gas were sold, or 54,224 BOEs. 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 increased $12.05, or 70%, from $17.30 in 1999 to $29.35 in 2000. The average price received per barrel of NGLs increased $6.36, or 67%, from $9.46 in 1999 to $15.82 in 2000. The average price received per mcf of gas increased 69% from $1.72 in 1999 to $2.90 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $700,691 as compared to $553,188 in 1999, an increase of $147,503, or 27%. The increase was primarily due to increases in the impairment of oil and gas properties, production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $502,676 in 2000 and $379,923 in 1999, resulting in a $122,753 increase, or 32%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 39% from $29,997 in 1999 to $41,729 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $37,554 in 2000 and $23,205 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $49,757 related to its oil and gas properties during 2000. Depletion was $106,529 in 2000 as compared to $143,268 in 1999, representing a decrease of $36,739, or 26%. This decrease was primarily due to a 148,753 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices, offset by an increase in oil production of 6,251 barrels for the period ended December 31, 2000 compared to the same period in 1999. 1736 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 20% to $776,849 from $648,378 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 32,789 barrels of oil, 13,546 barrels of NGLs and 47,331 mcf of gas were sold, or 54,224 BOEs. In 1998, 35,555 barrels of oil, 13,913 barrels of NGLs and 54,218 mcf of gas were sold, or 58,504 BOEs. The average price received per barrel of oil increased $4.11, or 31%, from $13.19 in 1998 to $17.30 in 1999. The average price received per barrel of NGLs increased $2.69, or 40%, from $6.77 in 1998 to $9.46 in 1999. The average price received per mcf of gas increased 10% from $1.57 in 1998 to $1.72 in 1999. Total costs and expenses decreased in 1999 to $553,188 as compared to $1,100,322 in 1998, a decrease of $547,134, or 50%. The decrease was primarily due to declines in the impairment of oil and gas properties, production costs and depletion, offset by an increase in G&A. Production costs were $379,923 in 1999 and $481,924 in 1998, resulting in a $102,001 decrease, or 21%. The decrease was due to declines in well maintenance costs and ad valorem taxes. During this period, G&A increased 49% from $20,196 in 1998 to $29,997 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $23,205 in 1999 and $16,483 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized a non-cash SFAS 121 charge of $373,422 related to its oil and gas properties during 1998. Depletion was $143,268 in 1999 compared to $224,780 in 1998, representing a decrease of $81,512, or 36%. This decrease was the result of an increase in proved reserves of 266,736 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1737 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $559,243 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $738,819, offset by increases in production costs paid of $122,753, G&A expenses paid of $11,732 and working capital of $45,091. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $543,958 to oil and gas receipts and an increase of $194,861 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on active properties. Proceeds from asset dispositions of $2,385 and $2,124 recognized during 2000 and 1999, respectively, were due to equipment credits received on active properties. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $870,242, of which $8,702 was distributed to the managing general partner and $861,540 to the limited partners. In 1999, cash distributions to the partners were $255,913, of which $2,559 was distributed to the managing general partner and $253,354 to the limited partners. 1738 PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 722,006 $ 692,013 $1,508,541 $ 776,849 $ 648,378 $1,043,119 $1,237,784 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 49,757 $ -- $ 373,422 $ -- $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 378,124 $ 379,422 $ 824,583 $ 230,882 $ (442,828) $ 403,823 $ 571,998 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,781 $ 3,794 $ 8,246 $ 2,309 $ (4,428) $ 4,038 $ 5,720 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 374,343 $ 375,628 $ 816,337 $ 228,573 $ (438,400) $ 399,785 $ 566,278 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 1,364.97 $ 1,369.66 $ 2,976.62 $ 833.45 $(1,598.54) $ 1,457.74 $ 2,064.82 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 1,099.62 $ 1,326.02 $ 3,141.44 $ 923.81 $ 951.07 $ 2,289.37 $ 2,184.00 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,851,391 $1,837,447 $1,756,921 $1,813,776 $1,834,790 $2,549,986 $2,769,711 ========== ========== ========== ========== ========== ========== ==========
1739 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 90 Spraberry Private Development, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 90 Spraberry Private Development, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's financial statements, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1740 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 5,200 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 3,954 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 1,617 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 310.90 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.39 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 160.21 -- as of December 31, 2000 (c) $ 141.88 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 290.41 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 301.56 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 168 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2040, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1741 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS June 30, 2001 and December 31, 2000 (Unaudited) 1742 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 188,742 $ 47,337 Accounts receivable - oil and gas sales 66,291 91,915 ---------- ---------- Total current assets 255,033 139,252 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 3,666,171 3,666,171 Accumulated depletion (3,062,806) (3,046,352) ---------- ---------- Net oil and gas properties 603,365 619,819 ---------- ---------- $ 858,398 $ 759,071 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 15,591 $ 12,584 Partners' capital: Managing general partner 9,701 8,737 Limited partners (130 interests) 833,106 737,750 ---------- ---------- 842,807 746,487 ---------- ---------- $ 858,398 $ 759,071 ========== ==========
The financial information included as of June 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. 2 1743 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 150,668 $ 139,968 $ 334,282 $ 273,886 Interest 1,268 1,364 2,341 2,496 -------- -------- -------- -------- 151,936 141,332 336,623 276,382 -------- -------- -------- -------- Costs and expenses: Oil and gas production 51,876 54,969 105,616 113,454 General and administrative 4,521 4,356 10,895 8,721 Depletion 8,093 9,014 16,454 22,396 -------- -------- -------- -------- 64,490 68,339 132,965 144,571 -------- -------- -------- -------- Net income $ 87,446 $ 72,993 $ 203,658 $ 131,811 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 875 $ 730 $ 2,037 $ 1,318 ======== ======== ======== ======== Limited partners $ 86,571 $ 72,263 $ 201,621 $ 130,493 ======== ======== ======== ======== Net income per limited partnership interest $ 665.93 $ 555.87 $1,550.93 $1,003.79 ======== ======== ======== ========
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. 3 1744 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 8,737 $ 737,750 $ 746,487 Distributions (1,073) (106,265) (107,338) Net income 2,037 201,621 203,658 -------- --------- --------- Balance at June 30, 2001 $ 9,701 $ 833,106 $ 842,807 ======== ========= =========
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. 4 1745 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------ 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 203,658 $ 131,811 Adjustments to reconcile net income to net cash provided by operating activities: Depletion 16,454 22,396 Changes in assets and liabilities: Accounts receivable 25,624 (9,399) Accounts payable 3,007 (52,750) --------- --------- Net cash provided by operating activities 248,743 92,058 --------- --------- Cash flows used in investing activities: Additions to oil and gas properties - (2,051) Cash flows used in financing activities: Cash distributions to partners (107,338) (161,017) --------- --------- Net increase (decrease) in cash 141,405 (71,010) Cash at beginning of period 47,337 84,843 --------- --------- Cash at end of period $ 188,742 $ 13,833 ========= =========
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. 5 1746 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 90 Spraberry Private Development, L.P. (the "Partnership") was organized in 1990 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1991. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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 these interim financial statements. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's report for the year ended December 31, 2000, 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 22% to $334,282 for the six months ended June 30, 2001 as compared to $273,886 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas 6 1747 and NGLs and an increase in production, offset by lower average prices received for oil. For the six months ended June 30, 2001, 8,138 barrels of oil, 2,371 barrels of natural gas liquids ("NGLs") and 14,921 mcf of gas were sold, or 12,996 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 7,948 barrels of oil, 2,767 barrels of NGLs and 9,984 mcf of gas were sold, or 12,379 BOEs. The average price received per barrel of oil decreased slightly from $27.19 for the six months ended June 30, 2000 to $27.13 for the same period ended June 30, 2001. The average price received per barrel of NGLs increased $3.52, or 27%, from $13.22 during the six months ended June 30, 2000 to $16.74 for the same period in 2001. The average price received per mcf of gas increased 133% from $2.12 during the six months ended June 30, 2000 to $4.95 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses decreased to $132,965 for the six months ended June 30, 2001 as compared to $144,571 for the same period in 2000, a decrease of $11,606, or 8%. This decrease was attributable to declines in production costs and depletion, offset by an increase in general and administrative expenses ("G&A"). Production costs were $105,616 for the six months ended June 30, 2001 and $113,454 for the same period in 2000, a $7,838 decrease, or 7%. This decrease was primarily due to lower well maintenance costs, offset by increases in production taxes associated with higher oil and gas prices. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 25% from $8,721 for the six months ended June 30, 2000 to $10,895 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Depletion was $16,454 for the six months ended June 30, 2001 as compared to $22,396 for the same period in 2000, a decrease of $5,942, or 27%. This decrease was primarily the result of an increase in proved reserves on a significant well during the period ended June 30, 2001. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased 8% to $150,668 for the three months ended June 30, 2001 as compared to $139,968 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas 7 1748 and NGLs, offset by a decline in production and lower average prices received for oil. For the three months ended June 30, 2001, production included 4,092 barrels of oil, 1,224 barrels of NGLs and 6,744 mcf of gas, or 6,440 BOEs. For the three months ended June 30, 2000, 3,809 barrels of oil, 1,691 barrels of NGLs and 6,034 mcf of gas were sold, or 6,506 BOEs. The average price received per barrel of oil decreased $1.10, or 4%, from $27.40 for the three months ended June 30, 2000 to $26.30 for the three months ended June 30, 2001. The average price received per barrel of NGLs increased $1.93, or 16%, from $12.42 during the three months ended June 30, 2000 to $14.35 for the same period in 2001. The average price received per mcf of gas increased 56% to $3.78 during the three months ended June 30, 2001 from $2.42 during the same period in 2000. Costs and Expenses: Total costs and expenses decreased to $64,490 for the three months ended June 30, 2001 as compared to $68,339 for the same period in 2000, a decrease of $3,849, or 6%. This decrease was due to lower production costs and depletion, offset by an increase in G&A. Production costs were $51,876 for the three months ended June 30, 2001 and $54,969 for the same period in 2000 resulting in a $3,093 decrease, or 6%. The decrease was primarily due to lower well maintenance costs. During this period, G&A increased 4% from $4,356 for the three months ended June 30, 2000 to $4,521 for the same period in 2001, primarily due to a higher allocation of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Depletion was $8,093 for the three months ended June 30, 2001 as compared to $9,014 for the same period in 2000, a decrease of $921, or 10%. This decrease was primarily the result of an increase in proved reserves on a significant well during the period ended June 30, 2001. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $156,685 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was due to an increase in oil and gas sales receipts of $60,241 and reductions in working capital of $90,780 and production costs of $7,838, offset by an increase in G&A expenses of $2,174. The increase in oil and gas receipts resulted from the increase in gas and NGL prices of $37,922 during 2001 and an increase in production of $22,954, offset by a $635 decline in oil prices as compared to the same period in 2000. The decrease in production costs was primarily due to lower well maintenance costs, offset by increases in production taxes associated with higher oil and gas prices. The increase in G&A was primarily due to a higher percentage of the managing general partner's G&A being 8 1749 allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues and an increase in audit and tax fees. Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2000 included expenditures related to equipment upgrades on various oil and gas properties. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $107,338, of which $1,073 was distributed to the managing general partner and $106,265 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $161,017, of which $1,610 was distributed to the managing general partner and $159,407 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) final proxy statement/prospectus and other relevant documents relating to 9 1750 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. 10 1751 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT December 31, 2000 and 1999 1752 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 90 Spraberry Private Development, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 90 Spraberry Private Development, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90 Spraberry Private Development, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 2 1753 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ----------- ----------- ASSETS ------ Current assets: Cash $ 47,337 $ 84,843 Accounts receivable - oil and gas sales 91,915 49,977 ----------- ----------- Total current assets 139,252 134,820 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 3,666,171 3,660,488 Accumulated depletion (3,046,352) (3,005,158) ----------- ----------- Net oil and gas properties 619,819 655,330 ----------- ----------- $ 759,071 $ 790,150 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 12,584 $ 81,557 Partners' capital: Managing general partner 8,737 8,358 Limited partners (130 interests) 737,750 700,235 ----------- ----------- 746,487 708,593 ----------- ----------- $ 759,071 $ 790,150 =========== ===========
The accompanying notes are an integral part of these financial statements. 3 1754 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 --------- --------- ---------- Revenues: Oil and gas $ 638,385 $ 345,743 $ 275,856 Interest 5,441 3,213 3,779 Gain on disposition of assets -- -- 213 --------- --------- ---------- 643,826 348,956 279,848 --------- --------- ---------- Costs and expenses: Oil and gas production 235,823 177,422 184,952 General and administrative 20,910 14,767 10,935 Impairment of oil and gas properties -- -- 90,823 Depletion 41,194 84,045 126,372 --------- --------- ---------- 297,927 276,234 413,082 --------- --------- ---------- Net income (loss) $ 345,899 $ 72,722 $ (133,234) ========= ========= ========== Allocation of net income (loss): Managing general partner $ 3,459 $ 727 $ (1,332) ========= ========= ========== Limited partners $ 342,440 $ 71,995 $ (131,902) ========= ========= ========== Net income (loss) per limited partnership interest $2,634.15 $ 553.81 $(1,014.63) ========= ========= ==========
The accompanying notes are an integral part of these financial statements. 4 1755 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ----------- ----------- ----------- Partners' capital at January 1, 1998 $ 11,813 $ 1,042,323 $ 1,054,136 Distributions (1,443) (142,847) (144,290) Net loss (1,332) (131,902) (133,234) ----------- ----------- ----------- Partners' capital at December 31, 1998 9,038 767,574 776,612 Distributions (1,407) (139,334) (140,741) Net income 727 71,995 72,722 ----------- ----------- ----------- Partners' capital at December 31, 1999 8,358 700,235 708,593 Distributions (3,080) (304,925) (308,005) Net income 3,459 342,440 345,899 ----------- ----------- ----------- Partners' capital at December 31, 2000 $ 8,737 $ 737,750 $ 746,487 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 5 1756 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net income (loss) $ 345,899 $ 72,722 $(133,234) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties -- -- 90,823 Depletion 41,194 84,045 126,372 Gain on disposition of assets -- -- (213) Changes in assets and liabilities: Accounts receivable (41,938) (22,812) 21,422 Accounts payable (68,973) 39,718 31,154 --------- --------- --------- Net cash provided by operating activities 276,182 173,673 136,324 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (5,683) (2,042) (7,821) Proceeds from asset dispositions -- 3,269 213 --------- --------- --------- Net cash provided by (used in) investing activities (5,683) 1,227 (7,608) --------- --------- --------- Cash flows used in financing activities: Cash distributions to partners (308,005) (140,741) (144,290) --------- --------- --------- Net increase (decrease) in cash (37,506) 34,159 (15,574) Cash at beginning of year 84,843 50,684 66,258 --------- --------- --------- Cash at end of year $ 47,337 $ 84,843 $ 50,684 ========= ========= =========
The accompanying notes are an integral part of these financial statements. 6 1757 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 90 Spraberry Private Development, L.P. (the "Partnership") was organized in 1990 as a general partnership under the laws of the State of Texas and was converted to a Delaware limited partnership in 1991. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. 7 1758 Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $90,823 related to its proved oil and gas properties during 1998. 8 1759 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $43,760 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 --------- --------- --------- Net income (loss) per statements of operations $ 345,899 $ 72,722 $(133,234) Impairment of oil and gas properties for financial reporting purposes - - 90,823 Depletion, depreciation and amortization for tax reporting purposes less than amounts for financial reporting purposes 36,539 79,135 110,651 Other, net (76,555) 39,044 36,173 --------- --------- --------- Net income per Federal income tax returns $ 305,883 $ 190,901 $ 104,413 ========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the net costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 --------- --------- ------ Development costs $ 5,683 $ 2,042 $7,821 ========= ========= ======
Capitalized oil and gas properties consist of the following:
2000 1999 ----------- ----------- Proved properties: Property acquisition costs $ 19,608 $ 19,608 Completed wells and equipment 3,646,563 3,640,880 ----------- ----------- 3,666,171 3,660,488 Accumulated depletion (3,046,352) (3,005,158) ----------- ----------- Net oil and gas properties $ 619,819 $ 655,330 =========== ===========
9 1760 NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 ------- ------- ------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $88,496 $85,512 $81,995 Reimbursement of general and administrative expenses $18,935 $11,455 $ 9,241
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 90 Spraberry Private Conv., L.P. ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership --------------- ----------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. 10 1761
Oil and NGLs Gas (bbls) (mcf) ------------ -------- Net proved reserves at January 1, 1998 270,590 306,642 Revisions (126,717) (142,535) Production (20,835) (24,095) -------- -------- Net proved reserves at December 31, 1998 123,038 140,012 Revisions 214,995 265,098 Production (20,688) (19,579) -------- -------- Net proved reserves at December 31, 1999 317,345 385,531 Revisions 122,969 18,001 Production (22,593) (22,121) -------- -------- Net proved reserves at December 31, 2000 417,721 381,411 ======== ========
As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.12 per barrel of NGLs and $7.64 per mcf of gas, discounted at 10% was approximately $2,575,000 and undiscounted was $5,966,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------------ 2000 1999 1998 -------- -------- -------- (in thousands) Oil and gas producing activities: Future cash inflows $ 12,670 $ 7,807 $ 1,314 Future production costs (6,704) (4,572) (1,058) -------- -------- -------- 5,966 3,235 256 10% annual discount factor (3,391) (1,487) (67) -------- -------- -------- Standardized measure of discounted future net cash flows $ 2,575 $ 1,748 $ 189 ======== ======== ========
11 1762
For the years ended December 31, --------------------------------- 2000 1999 1998 ------- ------- ------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (403) $ (168) $ (91) Net changes in prices and production costs 840 719 (692) Revisions of previous quantity estimates 844 1,623 (150) Accretion of discount 175 19 106 Changes in production rates, timing and other (629) (634) (48) ------- ------- ------- Change in present value of future net revenues 827 1,559 (875) ------- ------- ------- Balance, beginning of year 1,748 189 1,064 ------- ------- ------- Balance, end of year $ 2,575 $ 1,748 $ 189 ======= ======= =======
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 56% 50% - TEPPCO Crude Oil LLC 10% 10% - Genesis Crude Oil, L.P. - - 47% Phillips Petroleum Company 17% 14% 12% Western Gas Resources, Inc. 2% 3% 9%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P., Phillips Petroleum Company and TEPPCO Crude Oil LLC were $29,695, $12,633 and $4,023, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the Partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Program and Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being 12 1763 paid to the Partnership. Under the Partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating, general and administrative expenses. The managing general partner is also responsible for 1% of guaranty and loan commitment fees. In return, it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The partners entered into subscription agreements for aggregate capital contributions of $5,200,000. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent that its share of revenues does not cover such costs. 13 1764 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. (A DELAWARE LIMITED PARTNERSHIP) THIS REPORT 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In September 2000, restated financial statements for 1999 and 1998 were issued to the partners to correct a revenue allocation error for one well in the Partnership. The 1999 and 1998 amounts contained in the following discussion of financial condition and the results of operation are based on the restated amounts. Results of operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 85% to $638,385 from 2000 as compared to $345,743 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 16,344 barrels of oil, 6,249 barrels of natural gas liquids ("NGLs") and 22,121 mcf of gas were sold, or 26,280 barrel of oil equivalents ("BOEs"). In 1999, 15,384 barrels of oil, 5,304 barrels of NGLs and 19,579 mcf of gas were sold, or 23,951 BOEs. 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 increased $12.13, or 71%, from $17.04 in 1999 to $29.17 in 2000. The average price received per barrel of NGLs increased $5.86, or 60%, from $9.70 in 1999 to $15.56 in 2000. The average price received per mcf of gas increased 76% from $1.65 in 1999 to $2.91 in 2000. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to 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 in 2000. Total costs and expenses increased in 2000 to $297,927 as compared to $276,234 in 1999, an increase of $21,693, or 8%. The increase was due to increases in production costs and general and administrative expenses ("G&A"), offset by a decline in depletion. Production costs were $235,823 in 2000 and $177,422 in 1999, resulting in a $58,401 increase, or 33%. The increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased 42% from $14,767 in 1999 to $20,910 in 2000, primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $18,935 in 2000 and $11,455 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $41,194 in 2000 as compared to $84,045 in 1999, representing a decrease of $42,851, or 51%. This decrease was primarily due to a 106,156 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 1765 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 25% to $345,743 from $275,856 in 1998. The increase in revenues resulted from higher average prices received and an increase in production. In 1999, 15,384 barrels of oil, 5,304 barrels of NGLs and 19,579 mcf of gas were sold, or 23,951 BOEs. In 1998, 15,196 barrels of oil, 5,639 barrels of NGLs and 24,095 mcf of gas were sold, or 24,851 BOEs. The average price received per barrel of oil increased $3.98, or 30%, from $13.06 in 1998 to $17.04 in 1999. The average price received per barrel of NGLs increased $2.81, or 41%, from $6.89 in 1998 to $9.70 in 1999. The average price received per mcf of gas increased 3% from $1.60 in 1998 to $1.65 in 1999. Gain on disposition of assets of $213 recognized during 1998 was related to equipment salvage received on a well plugged and abandoned in a prior year. Total costs and expenses decreased in 1999 to $276,234 as compared to $413,082 in 1998, a decrease of $136,848, or 33%. The decrease was due to reductions in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $177,422 in 1999 and $184,952 in 1998, resulting in a $7,530 decrease, or 4%. The decrease was due to reductions in well maintenance costs and ad valorem taxes. During this period, G&A increased 35% from $10,935 in 1998 to $14,767 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $11,455 in 1999 and $9,241 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $90,823 related to its oil and gas properties during 1998. Depletion was $84,045 in 1999 compared to $126,372 in 1998, representing a decrease of $42,327, or 33%. This decrease was primarily due to an increase in proved reserves of 151,444 barrels of oil during 1999 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. 1766 Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $102,509 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $294,870, offset by increases in production costs paid of $58,401, G&A expenses paid of $6,143 and working capital of $127,817. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $244,760 to oil and gas receipts and an increase of $50,110 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. Net Cash Provided by (Used in) Investing Activities The Partnership's principal investing activities during 2000 and 1999 included expenditures related to equipment upgrades on active properties. Proceeds from asset dispositions of $3,269 in 1999 were due to equipment credits received on active wells. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $308,005, of which $3,080 was distributed to the managing general partner and $304,925 to the limited partners. In 1999, cash distributions to the partners were $140,741, of which $1,407 was distributed to the managing general partner and $139,334 to the limited partners. 1767 PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (Restated) (Restated) Operating results: Oil and gas sales $ 334,282 $ 273,886 $ 638,385 $ 345,743 $ 275,856 $ 432,783 $ 522,399 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 90,823 $ 257,009 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 203,658 $ 131,811 $ 345,899 $ 72,722 $ (133,234) $ (152,931) $ 203,213 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 2,037 $ 1,318 $ 3,459 $ 727 $ (1,332) $ (1,529) $ 2,032 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 201,621 $ 130,493 $ 342,440 $ 71,995 $ (131,902) $ (151,402) $ 201,181 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 1,550.93 $ 1,003.79 $ 2,634.15 $ 553.81 $(1,014.63) $(1,164.63) $ 1,547.55 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 817.42 $ 1,226.21 $ 2,345.58 $ 1,071.80 $ 1,098.82 $ 1,762.53 $ 1,836.00 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $ 858,398 $ 708,194 $ 759,071 $ 790,150 $ 818,273 $1,064,821 $1,450,363 ========== ========== ========== ========== ========== ========== ==========
1768 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 91-A, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 91-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 91-A, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1769 PARKER & PARSLEY 91-A, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners(a) $ 11,620 Aggregate Historical Limited Partner Distributions through July 31, 2001(a) $ 9,928 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer USA(a), (b) $ 4,665 Merger Value per $1,000 Limited Partner Investment(b), (c) $ 403.05 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.66 times past four quarterly distributions including the distribution in July 2001(b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 220.44 -- as of December 31, 2000(c) $ 206.61 Going Concern Value per $1,000 Limited Partner Investment(c), (d) $ 378.03 Liquidation Value per $1,000 Limited Partner Investment(c), (e) $ 390.96 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c), (f) $ 158
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2041, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1770 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, 2001 Commission File No. 33-38582-01 PARKER & PARSLEY 91-A, L.P. (Exact name of Registrant as specified in its charter) Delaware 75-2387572 ----------------------------------------- --------------------- (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 / / 1771 PARKER & PARSLEY 91-A, L.P. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................. 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................. 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000............................... 6 Notes to Financial Statements.......................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K....................... 11 Signatures............................................. 12
2 1772 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) Part 1. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- (Unaudited) ASSETS Current assets: Cash $ 525,883 $ 219,827 Accounts receivable - oil and gas sales 196,699 255,270 ---------- ---------- Total current assets 722,582 475,097 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,711,990 9,710,132 Accumulated depletion (7,790,421) (7,727,573) ----------- ---------- Net oil and gas properties 1,921,569 1,982,559 ---------- ---------- $ 2,644,151 $ 2,457,656 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 56,776 $ 32,513 Partners' capital: Managing general partner 25,918 24,295 Limited partners (11,620 interests) 2,561,457 2,400,848 ---------- ---------- 2,587,375 2,425,143 ---------- ---------- $ 2,644,151 $ 2,457,656 ========== ==========
The financial information included as of June 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 1773 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 431,706 $ 453,778 $ 884,166 $ 878,201 Interest 3,524 4,289 7,054 7,652 -------- -------- -------- -------- 435,230 458,067 891,220 885,853 -------- -------- -------- -------- Costs and expenses: Oil and gas production 152,796 160,948 313,648 308,717 General and administrative 11,109 21,632 32,165 32,098 Depletion 29,283 30,834 62,848 79,040 -------- -------- -------- -------- 193,188 213,414 408,661 419,855 -------- -------- -------- -------- Net income $ 242,042 $ 244,653 $ 482,559 $ 465,998 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 2,421 $ 2,447 $ 4,826 $ 4,660 ======== ======== ======== ======== Limited partners $ 239,621 $ 242,206 $ 477,733 $ 461,338 ======== ======== ======== ======== Net income per limited partnership interest $ 20.62 $ 20.84 $ 41.11 $ 39.70 ======== ======== ======== ========
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. 4 1774 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total ---------- ---------- ---------- Balance at January 1, 2001 $ 24,295 $2,400,848 $2,425,143 Distributions (3,203) (317,124) (320,327) Net income 4,826 477,733 482,559 --------- --------- --------- Balance at June 30, 2001 $ 25,918 $2,561,457 $2,587,375 ========= ========= =========
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. 5 1775 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ---------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net income $ 482,559 $ 465,998 Adjustment to reconcile net income to net cash provided by operating activities: Depletion 62,848 79,040 Changes in assets and liabilities: Accounts receivable 58,571 (41,246) Accounts payable 24,263 4,575 -------- -------- Net cash provided by operating activities 628,241 508,367 -------- -------- Cash flows from investing activities: Additions to oil and gas properties (1,858) (18,953) Proceeds from asset disposition - 8,812 -------- -------- Net cash used in investing activities (1,858) (10,141) -------- -------- Cash flows used in financing activities: Cash distributions to partners (320,327) (515,856) -------- -------- Net increase (decrease) in cash 306,056 (17,630) Cash at beginning of period 219,827 226,846 -------- -------- Cash at end of period $ 525,883 $ 209,216 ======== ========
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 1776 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of organization Parker & Parsley 91-A, L.P. (the "Partnership") is a limited partnership organized in 1991 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues increased slightly to $884,166 for the six months ended June 30, 2001 as compared to $878,201 for the same period in 2000. The increase in revenues resulted from higher average prices received for gas, offset by a decline in production and a decline in the average prices received for oil and NGLs. For the six months ended June 30, 2001, 19,763 7 1777 barrels of oil, 5,186 barrels of natural gas liquids ("NGLs") and 52,227 mcf of gas were sold, or 33,654 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 22,483 barrels of oil, 10,398 barrels of NGLs and 47,283 mcf of gas were sold, or 40,762 BOEs. The average price received per barrel of oil decreased $.43, or 2%, from $27.85 for the six months ended June 30, 2000 to $27.42 for the same period ended June 30, 2001. The average price received per barrel of NGLs decreased $1.85, or 13%, from $13.94 during the six months ended June 30, 2000 to $12.09 for the same period in 2001. The average price received per mcf of gas increased 136% from $2.27 during the six months ended June 30, 2000 to $5.35 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 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 six months ended June 30, 2001. Costs and Expenses: Total costs and expenses decreased to $408,661 for the six months ended June 30, 2001 as compared to $419,855 for the same period in 2000, a decrease of $11,194, or 3%. This decrease was due to a decline in depletion, offset by increases in production costs and general and administrative expenses ("G&A"). Production costs were $313,648 for the six months ended June 30, 2001 and $308,717 for the same period in 2000 resulting in a $4,931 increase, or 2%. This increase is primarily due to additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A increased slightly from $32,098 for the six months ended June 30, 2000 to $32,165 for the same period in 2001, primarily due to an increase in audit and tax fees. Depletion was $62,848 for the six months ended June 30, 2001 as compared to $79,040 for the same period in 2000, a decrease of $16,192 or 20%. This decrease was primarily due to a reduction in the Partnership's net depletable basis from charges taken 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") during the fourth quarter of 2000 and a decline in oil production of 2,720 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 5% to $431,706 for the three months ended June 30, 2001 as compared to $453,778 for the same period in 2000. The decrease in revenues resulted from a decrease in production and lower average prices received for oil and NGLs, offset by higher average prices received for gas. For the three months ended June 30, 2001, 9,218 barrels of 8 1778 oil, 2,611 barrels of NGLs and 33,176 mcf of gas were sold, or 17,358 BOEs. For the three months ended June 30, 2000, 11,123 barrels of oil, 5,559 barrels of NGLs and 24,304 mcf of gas were sold, or 20,733 BOEs. The average price received per barrel of oil decreased $1.06, or 4%, from $27.82 during the three months ended June 30, 2000 to $26.76 for the same period in 2001. The average price received per barrel of NGLs decreased $4.84, or 34%, from $14.20 during the three months ended June 30, 2000 to $9.36 for the same period in 2001. The average price received per mcf of gas increased 80% from $2.69 for the three months ended June 30, 2000 to $4.84 for the same period in 2001. Costs and Expenses: Total costs and expenses decreased to $193,188 for the three months ended June 30, 2001 as compared to $213,414 for the same period in 2000, a decrease of $20,226, or 9%. This decrease was due to declines in G&A, production costs and depletion. Production costs were $152,796 for the three months ended June 30, 2001 and $160,948 for the same period in 2000 resulting in an $8,152 decrease, or 5%. This decrease was primarily due to lower well maintenance costs. During this period, G&A decreased 49% from $21,632 for the three months ended June 30, 2000 to $11,109 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 a decrease in audit, tax and monitoring fees. Depletion was $29,283 for the three months ended June 30, 2001 as compared to $30,834 for the same period in 2000, a decrease of $1,551, or 5%. This decrease was due to 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 1,905 barrels for the three months ended June 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 $119,874 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This increase was the result of a reduction in working capital of $119,505 and an increase of $5,367 in oil and gas sales receipts, offset by increases in production costs of $4,931 and G&A costs of $67. The increase in oil and gas receipts resulted from the increase in gas prices of $146,081 during 2001, offset by a decline of $111,110 in production and a $29,604 decline resulting from lower oil and NGL prices as compared to the same period in 2000. The increase in production costs was primarily due to higher well maintenance costs incurred to stimulate well production. The increase in G&A was primarily due to an increase in audit and tax fees. 9 1779 Net Cash Used in Investing Activities The Partnership's principal investing activities during the six months ended June 30, 2001 and 2000 were related to expenditures for oil and gas equipment upgrades on active properties. Proceeds from asset dispositions of $8,812 were received during the six months ended June 30, 2000 on a temporarily abandoned well. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $320,327, of which $3,203 was distributed to the managing general partner and $317,124 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $515,856, of which $5,159 was distributed to the managing general partner and $510,697 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333-59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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, when it is finalized, 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 preliminary and (when filed) final proxy statement/prospectus and other relevant documents relating to 10 1780 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 1781 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) SIGNATURES 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 91-A, L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 6, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 12 1782 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-38582-01 PARKER & PARSLEY 91-A, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2387572 ------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) ----------------------------------------------- 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $11,575,000. As of March 8, 2001, the number of outstanding limited partnership interests was 11,620. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1783 PART I ITEM 1. BUSINESS Parker & Parsley 91-A, L.P. (the "Partnership") is a limited partnership organized in 1991 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 11,620 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 38% and 16% were attributable to sales made to Plains Marketing, L.P. and TEPPCO Crude Oil LLC, respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 1784 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 48 oil and gas wells. One well has been plugged and abandoned. At December 31, 2000, the Partnership had 47 wells producing. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1785 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 11,620 outstanding limited partnership interests held of record by 724 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, distributions of $1,162,365 and $432,629, respectively, were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 ------------- ------------- ------------ ------------- ------------- Operating results: ----------------- Oil and gas sales $ 1,899,948 $ 1,140,335 $ 955,645 $ 1,411,247 $ 1,629,975 ============ ============ =========== ============ ============ Impairment of oil and gas properties $ 12,824 $ 66,898 $ 306,043 $ 485,158 $ - ============ ============ =========== ============ ============ Net income (loss) $ 1,115,704 $ 266,803 $ (280,631) $ (7,029) $ 654,054 ============ ============ =========== ============ ============ Allocation of net income (loss): Managing general partner $ 11,157 $ 2,668 $ (2,806) $ (70) $ 6,540 ============ ============ =========== ============ ============ Limited partners $ 1,104,547 $ 264,135 $ (277,825) $ (6,959) $ 647,514 ============ ============ =========== ============ ============ Limited partners' net income (loss) per limited partnership interest $ 95.06 $ 22.73 $ (23.91) $ (.60) $ 55.72 ============ ============ =========== ============ ============ Limited partners' cash distributions per limited partnership interest $ 100.03 $ 37.23 $ 36.77 $ 75.11 $ 70.97 ============ ============ =========== ============ ============ At year end: ----------- Identifiable assets $ 2,457,656 $ 2,531,606 $ 2,667,803 $ 3,402,546 $ 4,289,878 ============ ============ =========== ============ ============
4 1786 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 67% to $1,899,948 for 2000 as compared to $1,140,335 in 1999. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 2000, 43,704 barrels of oil, 20,425 barrels of natural gas liquids ("NGLs") and 94,315 mcf of gas were sold, or 79,848 barrel of oil equivalents ("BOEs"). In 1999, 44,203 barrels of oil, 20,617 barrels of NGLs and 100,615 mcf of gas were sold, or 81,589 BOEs. 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 increased $12.33, or 70%, from $17.57 in 1999 to $29.90 in 2000. The average price received per barrel of NGLs increased $5.60, or 60%, from $9.34 in 1999 to $14.94 in 2000. The average price received per mcf of gas increased 80% from $1.70 in 1999 to $3.06 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. A gain on disposition of assets of $1,096 recognized during 1999 was from equipment credits received on one temporarily abandoned property. Total costs and expenses decreased in 2000 to $802,130 as compared to $884,937 in 1999, a decrease of $82,807, or 9%. The decrease was due to declines in depletion, the impairment of oil and gas properties and general and administrative expenses ("G&A"), offset by an increase in production costs. Production costs were $589,344 in 2000 and $514,994 in 1999, resulting in an increase of $74,350, or 14%. This increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 21% from $75,454 in 1999 to $59,962 in 2000. The Partnership paid the managing general partner $41,213 in 2000 and $34,110 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized non-cash charges of $12,824 and $66,898 related to its oil and gas properties during 2000 and 1999, respectively. 5 1787 Depletion decreased in 2000 to $140,000 as compared to $227,591 in 1999, representing a decrease of $87,591, or 38%. This decrease was primarily due to a 127,977 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices and a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1999. 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 19% to $1,140,335 from $955,645 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 44,203 barrels of oil, 20,617 barrels of NGLs and 100,615 mcf of gas were sold, or 81,589 BOEs. In 1998, 49,403 barrels of oil, 21,220 barrels of NGLs and 108,617 mcf of gas were sold, or 88,726 BOEs. The average price received per barrel of oil increased $4.42, or 34%, from $13.15 in 1998 to $17.57 in 1999. The average price received per barrel of NGLs increased $2.90, or 45%, from $6.44 in 1998 to $9.34 in 1999. The average price received per mcf of gas increased 9% from $1.56 in 1998 to $1.70 in 1999. A gain on disposition of assets of $1,096 recognized during 1999 was from equipment credits received on one temporarily abandoned property. Total costs and expenses decreased in 1999 to $884,937 as compared to $1,247,302 in 1998, a decrease of $362,365, or 29%. The decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $514,994 in 1999 and $535,948 in 1998, resulting in a decrease of $20,954, or 4%. This decrease resulted from declines in ad valorem taxes, well maintenance costs and workover costs, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 72% from $43,977 in 1998 to $75,454 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $34,110 in 1999 and $24,415 in 1998 for G&A incurred on behalf of the Partnership. The Partnership recognized non-cash SFAS 121 charges of $66,898 and $306,043 related to its oil and gas properties during 1999 and 1998, respectively. Depletion decreased in 1999 to $227,591 as compared to $361,334 in 1998. This represented a decrease of $133,743, or 37%. This decrease was the result of an increase in proved reserves of 281,767 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in oil production of 5,200 barrels for the period ended December 31, 1999 compared to the same period in 1998. Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, 6 1788 weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $647,967 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $767,190 and a decline in G&A expenses paid of $15,492, offset by an increase in production costs paid of $74,350 and working capital of $60,365. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $804,227 to oil and gas receipts, offset by $37,037 resulting from the decline in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance costs incurred to stimulate well production. Net Cash Used in Investing Activities The Partnership's investing activities during 2000 and 1999 included expenditures related to equipment upgrades on various oil and gas properties. Proceeds from asset dispositions of $11,549 and $1,096 recognized during 2000 and 1999, respectively, were from the disposition of oil and gas equipment on active wells. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $1,174,106, of which $11,741 was distributed to the managing general partner and $1,162,365 to the limited partners. In 1999, cash distributions to the partners were $436,999, of which $4,370 was distributed to the managing general partner and $432,629 to the limited partners. 7 1789 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 91-A, L.P.: Independent Auditors' Report............................................. 9 Balance Sheets as of December 31, 2000 and 1999.......................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998.................................................... 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998....................................... 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.................................................... 13 Notes to Financial Statements............................................ 14
8 1790 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 91-A, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 91-A, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 91-A, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 1791 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 -------------- ------------- ASSETS ------ Current assets: Cash $ 219,827 $ 226,846 Accounts receivable - oil and gas sales 255,270 177,988 ------------- ------------ Total current assets 475,097 404,834 ------------- ------------ Oil and gas properties - at cost, based on the successful efforts accounting method 9,710,132 9,701,521 Accumulated depletion (7,727,573) (7,574,749) ------------- ------------ Net oil and gas properties 1,982,559 2,126,772 ------------- ------------ $ 2,457,656 $ 2,531,606 ============= ============ LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Current liabilities: Accounts payable - affiliate $ 32,513 $ 48,061 Partners' capital: Managing general partner 24,295 24,879 Limited partners (11,620 interests) 2,400,848 2,458,666 ------------- ------------ 2,425,143 2,483,545 ------------- ------------ $ 2,457,656 $ 2,531,606 ============= ============
The accompanying notes are an integral part of these financial statements. 10 1792 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ------------- ------------ ------------- Revenues: Oil and gas $ 1,899,948 $ 1,140,335 $ 955,645 Interest 17,886 10,309 11,026 Gain on disposition of assets - 1,096 - ------------ ----------- ------------ 1,917,834 1,151,740 966,671 ------------ ----------- ------------ Costs and expenses: Oil and gas production 589,344 514,994 535,948 General and administrative 59,962 75,454 43,977 Impairment of oil and gas properties 12,824 66,898 306,043 Depletion 140,000 227,591 361,334 ------------ ----------- ------------ 802,130 884,937 1,247,302 ------------ ----------- ------------ Net income (loss) $ 1,115,704 $ 266,803 $ (280,631) ============ =========== ============ Allocation of net income (loss): Managing general partner $ 11,157 $ 2,668 $ (2,806) ============ =========== ============ Limited partners $ 1,104,547 $ 264,135 $ (277,825) ============ =========== ============ Net income (loss) per limited partners' interest $ 95.06 $ 22.73 $ (23.91) ============ =========== ============
The accompanying notes are an integral part of these financial statements. 11 1793 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total ----------- ----------- ------------ Partners' capital at January 1, 1998 $ 33,702 $ 3,332,223 $ 3,365,925 Distributions (4,315) (427,238) (431,553) Net loss (2,806) (277,825) (280,631) ----------- ----------- ------------ Partners' capital at December 31, 1998 26,581 2,627,160 2,653,741 Distributions (4,370) (432,629) (436,999) Net income 2,668 264,135 266,803 ----------- ----------- ------------ Partners' capital at December 31, 1999 24,879 2,458,666 2,483,545 Distributions (11,741) (1,162,365) (1,174,106) Net income 11,157 1,104,547 1,115,704 ----------- ----------- ------------ Partners' capital at December 31, 2000 $ 24,295 $ 2,400,848 $ 2,425,143 =========== =========== ============
The accompanying notes are an integral part of these financial statements. 12 1794 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 ------------ ------------ ------------ Cash flows from operations: Net income (loss) $ 1,115,704 $ 266,803 $ (280,631) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties 12,824 66,898 306,043 Depletion 140,000 227,591 361,334 Gain on disposition of assets - (1,096) - Changes in assets and liabilities: Accounts receivable (77,282) (66,464) 54,318 Accounts payable (15,548) 33,999 (22,559) ----------- ----------- ----------- Net cash provided by operating activities 1,175,698 527,731 418,505 ----------- ----------- ----------- Cash flows from investing activities: Additions to oil and gas properties (20,160) (23,360) (15,294) Proceeds from asset disposition 11,549 1,096 5,617 ----------- ----------- ----------- Net cash used in investing activities (8,611) (22,264) (9,677) ----------- ----------- ----------- Cash flows used in financing activities: Cash distributions to partners (1,174,106) (436,999) (431,553) ----------- ----------- ----------- Net increase (decrease) in cash (7,019) 68,468 (22,725) Cash at beginning of year 226,846 158,378 181,103 ----------- ----------- ----------- Cash at end of year $ 219,827 $ 226,846 $ 158,378 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 13 1795 PARKER & PARSLEY 91-A, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 91-A, L.P. (the "Partnership") is a limited partnership organized in 1991 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of- production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 1796 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated, in part, to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized non-cash impairment provisions of $12,824, $66,898 and $306,043 related to its proved oil and gas properties during 2000, 1999 and 1998, respectively. 15 1797 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $946,627 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31:
2000 1999 1998 ------------- ------------- ------------ Net income (loss) per statements of operations $ 1,115,704 $ 266,803 $ (280,631) Depletion and depreciation provisions for tax reporting purposes (greater than) less than amounts for financial reporting purposes 120,160 106,971 (11,376) Impairment of oil and gas properties for financial reporting purposes 12,824 66,898 306,043 Other, net 8,901 (4,139) 8,462 ------------ ------------ ----------- Net income per Federal income tax returns $ 1,257,589 $ 436,533 $ 22,498 ============ ============ ===========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 ------------- ------------- ------------ Development costs $ 20,160 $ 23,360 $ 15,294 ============ ============ ===========
Capitalized oil and gas properties consist of the following:
2000 1999 -------------- ------------- Property acquisition costs $ 343,666 $ 343,666 Completed wells and equipment 9,366,466 9,357,855 ------------- ------------ 9,710,132 9,701,521 Accumulated depletion (7,727,573) (7,574,749) ------------- ------------ Net oil and gas properties $ 1,982,559 $ 2,126,772 ============= ============
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 202,739 $ 213,969 $ 210,197 Reimbursement of general and administrative expenses $ 41,213 $ 34,110 $ 24,415
16 1798 The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 91-A GP ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a general partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership (1) --------------- --------------- Revenues: Proceeds from disposition of depreciable and depletable properties 34.3434343% 65.6565657% All other revenues 34.3434343% 65.6565657% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 24.2424242% 75.7575758% Operating costs, reporting and legal expenses and general and administrative expenses 34.3434343% 65.6565657%
(1) Includes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 45 limited partner interests owned by Pioneer USA. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ------------- ------------ Net proved reserves at January 1, 1998 909,941 1,063,660 Revisions (333,709) (228,660) Production (70,623) (108,617) ------------- ------------ Net proved reserves at December 31, 1998 505,609 726,383 Revisions 430,559 692,465 Production (64,820) (100,615) ------------- ------------ Net proved reserves at December 31, 1999 871,348 1,318,233 Revisions 171,624 199,837 Production (64,129) (94,315) ------------- ------------ Net proved reserves at December 31, 2000 978,843 1,423,755 ============= ============
17 1799 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.72 per barrel of oil, $12.21 per barrel of NGLs and $7.85 per mcf of gas, discounted at 10% was approximately $8,217,000 and undiscounted was $17,966,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider probable reserves, anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ---------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- (in thousands) Oil and gas producing activities: Future cash inflows $ 32,836 $ 21,453 $ 5,509 Future production costs (14,870) (11,854) (4,104) ------------ ------------ ------------ 17,966 9,599 1,405 10% annual discount factor (9,749) (4,661) (456) ------------ ------------ ------------ Standardized measure of discounted future net cash flows $ 8,217 $ 4,938 $ 949 ============ ============ ============
18 1800
For the years ended December 31, ---------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,311) $ (625) $ (420) Net changes in prices and production costs 3,414 2,743 (2,438) Revisions of previous quantity estimates 1,558 3,245 (441) Accretion of discount 494 95 391 Changes in production rates, timing and other (876) (1,469) (48) ------------ ------------ ------------ Change in present value of future net revenues 3,279 3,989 (2,956) ------------ ------------ ------------ Balance, beginning of year 4,938 949 3,905 ------------ ------------ ------------ Balance, end of year $ 8,217 $ 4,938 $ 949 ============ ============ ============
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership`s oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
2000 1999 1998 -------- -------- -------- Plains Marketing, L.P. 38% 36% - TEPPCO Crude Oil LLC 16% 17% - Genesis Crude Oil, L.P. - - 52% Western Gas Resources, Inc. 3% 5% 19%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P. and TEPPCO Crude Oil LLC were $64,973 and $19,274, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% 19 1801 of the Partnership's acquisition, drilling and completion costs, and 1% of its operating and general and administrative expenses. In return it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $11,620,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less sales commission costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 1802 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 1803 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 1804 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 25% of the Program's acquisition, drilling and completion costs and approximately 35% of its operating and general and administrative expenses. In return, they are allocated approximately 35% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers or employees of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 45 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 23 1805
2000 1999 1998 ----------- ----------- ----------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 202,739 $ 213,969 $ 210,197 Reimbursement of general and administrative expenses $ 41,213 $ 34,110 $ 24,415
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation in oil and gas activities of the Program. 24 1806 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 1807 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 91-A, L.P. Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield ------------------------------ Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 26, 2001 ------------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001 ------------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001 ------------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 26, 2001 ------------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 26, 2001 ------------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 26, 2001 ------------------------------------- Officer of Pioneer USA Rich Dealy
26 1808 PARKER & PARSLEY 91-A, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Form of Agreement of Limited Partnership - of Parker & Parsley 91-A, L.P. incorporated by reference to Exhibit A of the Partnership's Registration Statement on Form S-1 (Registration No. 33-38582) (hereinafter called the Partnership's Registration Statement) 4(b) Form of Limited Partner Subscription Agreement - incorporated by reference to Exhibit C of the Partnership's Registration Statement 4(b) Form of General Partner Subscription Agreement - incorporated by reference to Exhibit D of the Partnership's Registration Statement 4(b) Power of Attorney incorporated by reference to - Exhibit B of the Partnership's Registration Statement 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4.3 of Amendment No. 2 of the Partnership's Registration Statement 10(b) Development Drilling Program Agreement - incorporated by reference to Exhibit B of the Partnership's Registration Statement
27 1809 PARKER & PARSLEY 91-A, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 884,166 $ 878,201 $1,899,948 $1,140,335 $ 955,645 $1,411,247 $1,629,975 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ 12,824 $ 66,898 $ 306,043 $ 485,158 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 482,559 $ 465,998 $1,115,704 $ 266,803 $ (280,631) $ (7,029) $ 654,054 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 4,826 $ 4,660 $ 11,157 $ 2,668 $ (2,806) $ (70) $ 6,540 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 477,733 $ 461,338 $1,104,547 $ 264,135 $ (277,825) $ (6,959) $ 647,514 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 41.11 $ 39.70 $ 95.06 $ 22.73 $ (23.91) $ (.60) $ 55.72 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 27.29 $ 43.95 $ 100.03 $ 37.23 $ 36.77 $ 75.11 $ 70.97 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $2,644,151 $2,486,323 $2,457,656 $2,531,606 $2,667,803 $3,402,546 $4,289,878 ========== ========== ========== ========== ========== ========== ==========
1810 PIONEER NATURAL RESOURCES COMPANY PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD., SUITE 1400 IRVING, TEXAS 75039 SUPPLEMENTAL INFORMATION OF PARKER & PARSLEY 91-B, L.P., A DELAWARE LIMITED PARTNERSHIP TO PROXY STATEMENT/PROSPECTUS DATED , 2001 ---------- THE DATE OF THIS SUPPLEMENT IS , 2001 ---------- This document contains important information specific to Parker & Parsley 91-B, L.P., and supplements the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special meeting of limited partners of the partnership. The purpose of the special meeting is for you to vote upon the merger of the partnership with and into Pioneer USA that, if completed, will result in your receiving common stock of Pioneer Natural Resources Company for your partnership interests. This document contains the following information concerning Parker & Parsley 91-B, L.P.: o A table containing: -- the aggregate initial investment by the limited partners -- the aggregate historical limited partner distributions through July 31, 2001 -- the merger value attributable to partnership interests of limited partners, excluding Pioneer USA -- the merger value per $1,000 limited partner investment -- the merger value per $1,000 limited partner investment as a multiple of distributions for the past four quarterly distributions including the distribution in July 2001 -- the book value per $1,000 limited partner investment as of June 30, 2001 and as of December 31, 2000 -- the going concern value per $1,000 limited partner investment -- the liquidation value per $1,000 limited partner investment -- the ordinary tax loss per $1,000 limited partner investment in year of initial investment o Information about: -- the legal opinion for the limited partners -- the term of the partnership o The partnership's quarterly report on Form 10-Q, including management's discussion and analysis of financial condition and results of operations, for the six months ended June 30, 2001 o The partnership's annual report on Form 10-K, including management's discussion and analysis of financial condition and results of operations, for the year ended December 31, 2000 o Selected historical financial data for the partnership for the six months ended June 30, 2001 and 2000 and the five years ended December 31, 2000 -1- 1811 PARKER & PARSLEY 91-B, L.P. SUPPLEMENTAL INFORMATION TABLE Aggregate Initial Investment by the Limited Partners (a) $ 11,249 Aggregate Historical Limited Partner Distributions through July 31, 2001 (a) $ 8,297 Merger Value Attributable to Partnership Interests of Limited Partners, Excluding Pioneer $ 5,003 USA (a), (b) Merger Value per $1,000 Limited Partner Investment (b), (c) $ 445.11 Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.73 times past four quarterly distributions including the distribution in July 2001 (b), (c) Book Value per $1,000 Limited Partner Investment: -- as of June 30, 2001 (c) $ 170.62 -- as of December 31, 2000 (c) $ 160.69 Going Concern Value per $1,000 Limited Partner Investment (c), (d) $ 417.84 Liquidation Value per $1,000 Limited Partner Investment (c), (e) $ 431.87 Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 142 (c), (f)
---------- (a) Stated in thousands. (b) The merger value for the partnership is equal to the sum of the present value of estimated future net revenues from the partnership's estimated oil and gas reserves and its net working capital, in each case as of March 31, 2001, less its pro rata share, based on its reserve value, of the estimated expenses and fees of the mergers of all of the partnerships and less the cash distribution on July 13, 2001, by the partnership to its partners. (c) Interests in some partnerships were sold in units at prices other than $1,000. We have presented this information based on a $1,000 initial investment for ease of use and comparison among partnerships. You should not assume that the amount shown per $1,000 investment is the same as the value or amount attributable to a single unit investment. (d) The going concern value for the partnership is based upon: (1) the sum of (A) the estimated net cash flow from the sale of the partnership's reserves during a 10-year operating period and (B) the estimated residual value from the sale of the partnership's remaining reserves at the end of the operating period, in each case using the same pricing and discount rate as in the merger value calculation, less (2)(A) partnership level general and administrative expenses, and (B) the cash distribution on July 13, 2001 by the partnership to its partners. (e) The liquidation value for the partnership is based upon the sale of the partnership's reserves at the reserve value, less (1) liquidation expenses which are estimated to be the sum of (A) the partnership's pro rata share of the merger expenses and fees described in footnote (b) above and (B) 3% of the partnership's reserve value, and (2) the cash distribution on July 13, 2001 by the partnership to its partners. The liquidation expenses represent estimated costs to retain an investment banker or broker to sell the assets of the partnership and the legal and other closing costs associated with such transaction, including the wind-down costs of the partnership. (f) Your ability to use your distributive share of the partnership's loss to offset your other income may have been subject to certain limitations at your level as a partner, and you may therefore wish to consult your tax advisor to determine the additional value, if any, actually realized by you in your particular circumstances. INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS The partnership agreement for the partnership requires that special legal counsel render an opinion on behalf of the limited partners to Pioneer USA that neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners. Although not required by the partnership agreement, the opinion will also state that neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability. In addition, the counsel designated to render the opinion is not required to be counsel other than counsel to Pioneer USA or the partnership. Both the designated counsel and the legal opinion must be approved by the limited partners. Pioneer USA has retained Stradley Ronon Stevens & Young, LLP of Wilmington, Delaware, for the purpose of rendering this legal opinion on behalf of the limited partners to Pioneer USA. The merger proposals include an approval of that counsel and the form of its opinion. A copy of the opinion is attached as an exhibit to the merger proposals. INFORMATION ABOUT THE TERM OF THE PARTNERSHIP The term of the partnership is until December 31, 2041, unless the partnership is earlier terminated in accordance with the applicable provisions of its partnership agreement. -2- 1812 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, 2001 Commission File No. 33-38582-02 PARKER & PARSLEY 91-B, L.P. (Exact name of Registrant as specified in its charter) Delaware 75-2397335 ----------------------------------------- --------------------- (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 / / 1813 PARKER & PARSLEY 91-B, L.P. TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and six months ended June 30, 2001 and 2000.................... 4 Statement of Partners' Capital for the six months ended June 30, 2001.................................... 5 Statements of Cash Flows for the six months ended June 30, 2001 and 2000................................. 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 11 Signatures............................................... 12
2 1814 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) Part 1. Financial Information Item 1. Financial Statements BALANCE SHEETS
June 30, December 31, 2001 2000 ----------- ----------- ASSETS (Unaudited) Current assets: Cash $ 484,839 $ 185,644 Accounts receivable - oil and gas sales 167,632 281,416 ---------- ---------- Total current assets 652,471 467,060 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,764,161 9,761,207 Accumulated depletion (8,439,325) (8,398,807) ---------- ---------- Net oil and gas properties 1,324,836 1,362,400 ---------- ---------- $ 1,977,307 $ 1,829,460 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 41,661 $ 6,714 Partners' capital: Managing general partner 16,324 15,195 Limited partners (11,249 interests) 1,919,322 1,807,551 ---------- ---------- 1,935,646 1,822,746 ---------- ---------- $ 1,977,307 $ 1,829,460 ========== ==========
The financial information included as of June 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 1815 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, ---------------------- ---------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Revenues: Oil and gas $ 350,850 $ 500,753 $ 732,727 $ 954,341 Interest 3,524 4,261 6,842 7,470 Gain on disposition of assets - 2,273 - 2,273 -------- -------- -------- -------- 354,374 507,287 739,569 964,084 -------- -------- -------- -------- Costs and expenses: Oil and gas production 152,544 134,063 277,327 280,019 General and administrative 8,966 26,259 26,948 37,463 Depletion 18,734 20,045 40,518 42,010 -------- -------- -------- -------- 180,244 180,367 344,793 359,492 -------- -------- -------- -------- Net income $ 174,130 $ 326,920 $ 394,776 $ 604,592 ======== ======== ======== ======== Allocation of net income: Managing general partner $ 1,742 $ 3,269 $ 3,948 $ 6,046 ======== ======== ======== ======== Limited partners $ 172,388 $ 323,651 $ 390,828 $ 598,546 ======== ======== ======== ======== Net income per limited partnership interest $ 15.32 $ 28.77 $ 34.74 $ 53.21 ======== ======== ======== ========
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. 4 1816 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (Unaudited)
Managing general Limited partner partners Total --------- ---------- ---------- Balance at January 1, 2001 $ 15,195 $1,807,551 $1,822,746 Distributions (2,819) (279,057) (281,876) Net income 3,948 390,828 394,776 -------- --------- --------- Balance at June 30, 2001 $ 16,324 $1,919,322 $1,935,646 ======== ========= =========
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. 5 1817 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ------------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $ 394,776 $ 604,592 Adjustment to reconcile net income to net cash provided by operating activities: Depletion 40,518 42,010 Gain on disposition of assets - (2,273) Changes in assets and liabilities: Accounts receivable 113,784 (61,382) Accounts payable 34,947 13,131 --------- --------- Net cash provided by operating activities 584,025 596,078 --------- --------- Cash flows from investing activities: Additions to oil and gas properties (3,087) (6,482) Proceeds from asset dispositions 133 2,273 --------- --------- Net cash used in investing activities (2,954) (4,209) --------- --------- Cash flows used in financing activities: Cash distributions to partners (281,876) (554,017) --------- --------- Net increase in cash 299,195 37,852 Cash at beginning of period 185,644 213,165 --------- --------- Cash at end of period $ 484,839 $ 251,017 ========= =========
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 1818 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) Note 1. Organization and nature of operations Parker & Parsley 91-B, L.P. (the "Partnership") is a limited partnership organized in 1991 under the laws of the State of Delaware. 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 June 30, 2001 and for the three and six months ended June 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 June 30, 2000 financial statements to conform to the June 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Six months ended June 30, 2001 compared with six months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 23% to $732,727 for the six months ended June 30, 2001 as compared to $954,341 for the same period in 2000. The decrease in revenues resulted from a decrease in production and a decline in the average price received for oil, offset by higher average prices received for gas and NGLs. For the six months ended June 30, 2001, 17,901 barrels of oil, 7 1819 6,251 barrels of natural gas liquids ("NGLs") and 28,144 mcf of gas were sold, or 28,843 barrel of oil equivalents ("BOEs"). For the six months ended June 30, 2000, 24,467 barrels of oil, 11,016 barrels of NGLs and 42,828 mcf of gas were sold, or 42,621 BOEs. The average price received per barrel of oil decreased $.65, or 2%, from $28.58 for the six months ended June 30, 2000 to $27.93 for the same period in 2001. The average price received per barrel of NGLs increased $1.23, or 8%, from $14.84 during the six months ended June 30, 2000 to $16.07 for the same period in 2001. The average price received per mcf of gas increased 120% from $2.14 during the six months ended June 30, 2000 to $4.70 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 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 six months ended June 30, 2001. Gain on disposition of assets of $2,273 was recognized during the six months ended June 30, 2000 from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses decreased to $344,793 for the six months ended June 30, 2001 as compared to $359,492 for the same period in 2000, a decrease of $14,699, or 4%. This decrease was due to declines in general and administrative expenses ("G&A"), production costs and depletion. Production costs were $277,327 for the six months ended June 30, 2001 and $280,019 for the same period in 2000 resulting in a $2,692 decrease, or 1%. This decrease was primarily the result of a decline in workover costs, offset by an increase in well maintenance costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 28% from $37,463 for the six months ended June 30, 2000 to $26,948 for the same period in 2001. The decline 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 for the six months ended June 30, 2001 as compared to the same period in 2000. Depletion was $40,518 for the six months ended June 30, 2001 as compared to $42,010 for the same period in 2000, a decrease of $1,492, or 4%. This decrease was primarily due to a decline in oil production of 6,566 barrels for the six months ended June 30, 2001 as compared to the same period in 2000. Three months ended June 30, 2001 compared with three months ended June 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 30% to $350,850 for the three months ended June 30, 2001 as compared to $500,753 for the same period in 2000. The decrease in revenues resulted from a decrease in production and a decline in 8 1820 the average price received for oil, offset by higher average prices received for gas and NGLs. For the three months ended June 30, 2001, 8,311 barrels of oil, 4,242 barrels of NGLs and 17,521 mcf of gas were sold, or 15,473 BOEs. For the three months ended June 30, 2000, 12,405 barrels of oil, 6,040 barrels of NGLs and 23,026 mcf of gas were sold, or 22,283 BOEs. The average price received per barrel of oil decreased $1.72, or 6%, from $28.62 for the three months ended June 30, 2000 to $26.90 for the same period in 2001. The average price received per barrel of NGLs increased $.32, or 2%, from $14.61 during the three months ended June 30, 2000 to $14.93 for the same period in 2001. The average price received per mcf of gas increased 46% from $2.50 during the three months ended June 30, 2000 to $3.65 in 2001. Gain on disposition of assets of $2,273 was recognized during the three months ended June 30, 2000 from equipment credits received on one fully depleted well. Costs and Expenses: Total costs and expenses decreased to $180,244 for the three months ended June 30, 2001 as compared to $180,367 for the same period in 2000, a decrease of $123. This decrease was due to declines in G&A and depletion, offset by an increase in production costs. Production costs were $152,544 for the three months ended June 30, 2001 and $134,063 for the same period in 2000 resulting in an $18,481 increase, or 14%. This increase was primarily due to additional well maintenance and workover costs incurred to stimulate well production. During this period, G&A decreased 66% from $26,259 for the three months ended June 30, 2000 to $8,966 for the same period in 2001. The decline was due to less G&A being allocated due to lower oil and gas revenues for the three months ended June 30, 2001 as compared to the same period in 2000 and declines in audit, tax and monitoring fees. Depletion was $18,734 for the three months ended June 30, 2001 as compared to $20,045 for the same period in 2000, a decrease of $1,311, or 7%. This decrease was primarily due to a decrease in oil production of 4,094 barrels for the three months ended June 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 decreased $12,053 during the six months ended June 30, 2001 from the same period ended June 30, 2000. This decrease was due to a decline in oil and gas sales receipts of $222,242, offset by declines in production costs of $2,692, G&A expenses paid of $10,515 and working capital of $196,982. The decrease in oil and gas receipts resulted from a decline of $328,981 in production during 2001 as compared to the same period in 2000 and a decline in oil prices of $16,400, offset by an increase in gas and 9 1821 NGL prices of $123,139 during 2001. The decrease in production costs was primarily due to lower workover costs, offset by an increase in well maintenance costs incurred to stimulate well production. The decrease in G&A was primarily due to lower G&A being allocated due to decreased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities for the six months ended June 30, 2001 and 2000 were related to the upgrades of oil and gas equipment on active properties. Proceeds from asset dispositions of $133 and $2,273 incurred during the six months ended June 30, 2001 and 2000, respectively, were related to equipment credits on active wells. Net Cash Used in Financing Activities For the six months ended June 30, 2001, cash distributions to the partners were $281,876, of which $2,819 was distributed to the managing general partner and $279,057 to the limited partners. For the same period ended June 30, 2000, cash distributions to the partners were $554,017, of which $5,540 was distributed to the managing general partner and $548,477 to the limited partners. For the three months ended June 30, 2001, no distributions were made by the partnership to its partners. Subsequent to June 30, 2001 the cash distribution that otherwise would have been mailed to partners in late June was made to holders of record as of July 9, 2001 and was mailed on July 13, 2001. For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On June 29, 2001, Pioneer Natural Resources Company ("Pioneer") filed with the Securities and Exchange Commission Amendment No. 1 to the Form S-4 Registration Statement (File No. 333- 59094) (the "preliminary proxy statement/prospectus"), which proposes an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA upon the closing of the transactions described in the preliminary proxy statement/prospectus, and the partnership interests of each such partnership will be converted into the right to receive Pioneer common stock. The Partnership is one of the 46 Parker & Parsley limited partnerships that will be asked to approve the agreement and plan of merger. The preliminary 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. Pioneer USA will solicit proxies from limited partners to approve the mergers only when the proxy statement/prospectus is final and declared effective. No solicitation will be made using preliminary materials. Nonetheless, copies of the preliminary 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. 10 1822 The limited partners are urged to read the proxy statement/prospectus of Pioneer filed with the Securities and Exchange Commission, when it is finalized, 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 preliminary and (when filed) 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - none (b) Reports on Form 8-K - none 11 1823 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) SIGNATURES 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 91-B, L.P. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: August 8, 2001 By: /s/ Rich Dealy ------------------------------------ Rich Dealy, Vice President and Chief Accounting Officer 12 1824 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 33-38582-02 PARKER & PARSLEY 91-B, L.P. (Exact name of Registrant as specified in its charter) DELAWARE 75-2397335 -------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 ---------------------------------------------------------------- ------------- (Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT) 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / X / No market currently exists for the limited partnership interests of the Registrant. Based on the original purchase price, the aggregate market value of limited partnership interests owned by non-affiliates of the Registrant is $11,239,000. As of March 8, 2001, the number of outstanding limited partnership interests was 11,249. The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: None PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN 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. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS. 1825 PART I ITEM 1. BUSINESS Parker & Parsley 91-B, L.P. (the "Partnership") is a limited partnership organized in 1991 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 11,249 limited partnership interests outstanding. The Partnership does not have any employees of its own. Pioneer USA employs 701 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this Report is filed. Pioneer USA is responsible for all management functions. The Partnership engages in oil and gas development and production and is not involved in any industry segment other than oil and gas. The Partnership's production is geographically concentrated in West Texas. The principal markets during 2000 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. During 2000, Pioneer USA marketed the Partnership's gas to a variety of purchasers, none of which accounted for 10% or more of the Partnership's oil and gas revenues. Of the Partnership's total oil and gas revenues for 2000, approximately 48% and 22% were attributable to sales made to Mobil Oil Corporation and Plains Marketing, L.P., respectively. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas production. The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties. Oil and gas production operations are subject to various types of regulations by local, state and federal agencies. The Partnership's operations are also subject to state conservation laws and regulations, including the establishment of maximum rates of production from wells and the regulation of spacing, plugging and abandonment of wells. Each state generally imposes a production or severance tax with respect to production and sale of oil and gas within their respective jurisdictions. Noncompliance with the laws and regulations may subject the Partnership to penalties, damages or other liabilities and compliance may increase the cost of the Partnership's operations. The oil and gas business is also subject to environmental hazards such as oil spills, gas leaks and ruptures and discharges of toxic substances or gases that could expose the Partnership to substantial 2 1826 liability due to pollution and other environmental damages. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations. ITEM 2. PROPERTIES The Partnership's properties consist of leasehold interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests. Fractional working interests in developmental oil and gas prospects located primarily in the Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 29 oil and gas wells. At December 31, 2000, the Partnership had 29 producing oil and gas wells. For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been evaluated by Williamson Petroleum Consultants, Inc., an independent petroleum consultant. ITEM 3. LEGAL PROCEEDINGS The Partnership from time to time is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer USA believes to be material to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the partners during the fourth quarter of 2000. 3 1827 PART II ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP DISTRIBUTIONS At March 8, 2001, the Partnership had 11,249 outstanding limited partnership interests held of record by 677 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA has made certain commitments to purchase partnership interests at a computed value. Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations will be distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 2000 and 1999, $1,324,583 and $481,274, respectively, of such revenue-related distributions were made to the limited partners. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data for the years ended December 31:
2000 1999 1998 1997 1996 -------------- ------------- -------------- -------------- ---------- Operating results: ------------------- Oil and gas sales $ 2,046,224 $ 1,136,073 $ 873,012 $ 1,273,373 $1,632,595 ============== ============= ============== ============== ========== Impairment of oil and gas properties $ -- $ -- $ 295,542 $ 323,078 $ -- ============== ============= ============== ============== ========== Net income (loss) $ 1,354,094 $ 490,669 $ (177,905) $ 222,730 $ 924,002 ============== ============= ============== ============== ========== Allocation of net income (loss): Managing general partner $ 13,541 $ 4,907 $ (1,779) $ 2,227 $ 9,240 ============== ============= ============== ============== ========== Limited partners $ 1,340,553 $ 485,762 $ (176,126) $ 220,503 $ 914,762 ============== ============= ============== ============== ========== Limited partners' net income (loss) per limited partnership interest $ 119.17 $ 43.18 $ (15.66) $ 19.60 $ 81.32 ============== ============= ============== ============== ========== Limited partners' cash distributions per limited partnership interest $ 117.75 $ 42.78 $ 36.76 $ 75.32 $ 84.40 ============== ============= ============== ============== ========== At year end: ------------- Identifiable assets $ 1,829,460 $ 1,843,803 $ 1,820,336 $ 2,424,808 $3,051,464 ============== ============= ============== ============== ==========
4 1828 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 2000 compared to 1999 The Partnership's oil and gas revenues increased 80% to $2,046,224 for 2000 as compared to $1,136,073 in 1999. The increase in revenues resulted from higher average prices received and an increase in production. In 2000, 47,684 barrels of oil, 21,866 barrels of natural gas liquids ("NGLs") and 85,556 mcf of gas were sold, or 83,809 barrel of oil equivalents ("BOEs"). In 1999, 46,030 barrels of oil, 19,026 barrels of NGLs and 74,025 mcf of gas were sold, or 77,394 BOEs. 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 increased $12.19, or 68%, from $17.90 in 1999 to $30.09 in 2000. The average price received per barrel of NGLs increased $6.35, or 63%, from $10.15 in 1999 to $16.50 in 2000. The average price received per mcf of gas increased 82% from $1.61 in 1999 to $2.93 in 2000. The market price for oil and gas has been extremely volatile in the past decade and management expects a certain amount of volatility to 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 in 2000. Gain on disposition of assets of $2,273 was recognized during 2000 from equipment credits received on one fully depleted well. Total costs and expenses increased in 2000 to $713,527 as compared to $655,625 in 1999, an increase of $57,902, or 9%. The increase was due to an increase in production costs, offset by decreases in depletion and general and administrative expenses ("G&A"). Production costs were $576,561 in 2000 and $442,342 in 1999, resulting in an increase of $134,219, or 30%. This increase was primarily due to higher production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 22% from $68,860 in 1999 to $53,623 in 2000. The Partnership paid the managing general partner $38,999 in 2000 and $33,982 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid directly by the Partnership. The managing general partner determines the allocated expenses based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Depletion was $83,343 in 2000 as compared to $144,423 in 1999, representing a decrease of $61,080, or 42%. This decrease was primarily due to a 82,084 barrels of oil increase in proved reserves during 2000 as a result of higher commodity prices. 5 1829 1999 compared to 1998 The Partnership's 1999 oil and gas revenues increased 30% to $1,136,073 from $873,012 in 1998. The increase in revenues resulted from higher average prices received, offset by a decline in production. In 1999, 46,030 barrels of oil, 19,026 barrels of NGLs and 74,025 mcf of gas were sold, or 77,394 BOEs. In 1998, 49,100 barrels of oil, 17,427 barrels of NGLs and 68,244 mcf of gas were sold, or 77,901 BOEs. The average price received per barrel of oil increased $4.57, or 34%, from $13.33 in 1998 to $17.90 in 1999. The average price received per barrel of NGLs increased $3.36, or 49%, from $6.79 in 1998 to $10.15 in 1999. The average price received per mcf of gas increased 10% from $1.47 in 1998 to $1.61 in 1999. Gain on disposition of assets of $197 recognized in 1998 was attributable to credits received from the disposal of oil and gas equipment on a saltwater disposal well that was plugged and abandoned in a prior year. Total costs and expenses decreased in 1999 to $655,625 as compared to $1,062,299 in 1998, a decrease of $406,674, or 38%. The decrease was due to declines in the impairment of oil and gas properties, depletion and production costs, offset by an increase in G&A. Production costs were $442,342 in 1999 and $464,489 in 1998, resulting in a $22,147 decrease, or 5%. This decrease was due to lower ad valorem taxes and well maintenance costs, offset by an increase in production taxes due to increased oil and gas revenues. During this period, G&A increased 58% from $43,606 in 1998 to $68,860 in 1999 primarily due to a higher percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of increased oil and gas revenues. The Partnership paid the managing general partner $33,982 in 1999 and $27,503 in 1998 for G&A incurred on behalf of the Partnership. 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 managing general partner reviews the Partnership's oil and gas properties for impairment whenever events or circumstances indicate a decline in the recoverability of the carrying value of the Partnership's assets may have occurred. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $295,542 related to its oil and gas properties during 1998. Depletion was $144,423 in 1999 compared to $258,662 in 1998. This represented a decrease of $114,239, or 44%. This decrease was primarily the result of an increase in proved reserves of 362,706 barrels of oil during 1999 as a result of higher commodity prices, a reduction in the Partnership's net depletable basis from charges taken in accordance with SFAS 121 during the fourth quarter of 1998. 6 1830 Petroleum industry The petroleum industry has been characterized by volatile oil, NGL and natural gas commodity prices and relatively stable supplier costs during the three years ended December 31, 2000. During 1998, weather patterns, regional economic recessions and political matters combined to cause worldwide oil supplies to exceed demand resulting in a substantial decline in oil prices. Also during 1998, but to a lesser extent, market prices for natural gas declined. During 1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations announced reductions in their planned export volumes. Those announcements, together with the enactment of the announced reductions in export volumes, had a positive impact on world oil prices, as have overall natural gas supply and demand fundamentals on North American natural gas prices. Although the favorable commodity price environment and stable field service cost environment is expected to continue during 2001, there is no assurance that commodity prices will not return to a less favorable level or that field service costs will not escalate in the future, both of which could negatively impact the Partnership's future results of operations and cash distributions. Liquidity and capital resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $766,498 during the year ended December 31, 2000 from 1999. This increase was due to an increase in oil and gas sales receipts of $919,054 and a decline in G&A expenses paid of $15,237, offset by increases in production costs paid of $134,219 and working capital of $33,574. The increase in oil and gas receipts resulted from the increase in commodity prices during 2000 which contributed an additional $788,626 to oil and gas receipts and $130,428 resulting from the increase in production during 2000. The increase in production costs was primarily due to increased production taxes associated with higher oil and gas prices and additional well maintenance and workover costs incurred to stimulate well production. Net Cash Used in Investing Activities The Partnership's principal investing activities during 2000 and 1999 were related to the addition of equipment on various oil and gas properties. Proceeds from asset dispositions of $2,372 recognized during 2000 were related to equipment credits on two active wells. Net Cash Used in Financing Activities In 2000, cash distributions to the partners were $1,337,963, of which $13,380 was distributed to the managing general partner and $1,324,583 to the limited partners. In 1999, cash distributions to the partners were $486,135, of which $4,861 was distributed to the managing general partner and $481,274 to the limited partners. 7 1831 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Financial Statements of Parker & Parsley 91-B, L.P.: Independent Auditors' Report........................................................................ 9 Balance Sheets as of December 31, 2000 and 1999..................................................... 10 Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998............................................................................... 11 Statements of Partners' Capital for the Years Ended December 31, 2000, 1999 and 1998.................................................................. 12 Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998............................................................................... 13 Notes to Financial Statements....................................................................... 14
8 1832 INDEPENDENT AUDITORS' REPORT The Partners Parker & Parsley 91-B, L.P. (A Delaware Limited Partnership): We have audited the balance sheets of Parker & Parsley 91-B, L.P. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 91-B, L.P. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Dallas, Texas March 9, 2001 9 1833 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) BALANCE SHEETS December 31
2000 1999 ---------------- ---------------- ASSETS Current assets: Cash $ 185,644 $ 213,165 Accounts receivable - oil and gas sales 281,416 197,204 ------------- ------------- Total current assets 467,060 410,369 ------------- ------------- Oil and gas properties - at cost, based on the successful efforts accounting method 9,761,207 9,748,898 Accumulated depletion (8,398,807) (8,315,464) ------------- ------------- Net oil and gas properties 1,362,400 1,433,434 ------------- ------------- $ 1,829,460 $ 1,843,803 ============== ============== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 6,714 $ 37,188 Partners' capital: Managing general partner 15,195 15,034 Limited partners (11,249 interests) 1,807,551 1,791,581 ------------- ------------- 1,822,746 1,806,615 ------------- ------------- $ 1,829,460 $ 1,843,803 ============== ==============
The accompanying notes are an integral part of these financial statements. 10 1834 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF OPERATIONS For the years ended December 31
2000 1999 1998 ----------- ----------- ----------- Revenues: Oil and gas $ 2,046,224 $ 1,136,073 $ 873,012 Interest 19,124 10,221 11,185 Gain on disposition of assets 2,273 -- 197 ----------- ----------- ----------- 2,067,621 1,146,294 884,394 ----------- ----------- ----------- Costs and expenses: Oil and gas production 576,561 442,342 464,489 General and administrative 53,623 68,860 43,606 Impairment of oil and gas properties -- -- 295,542 Depletion 83,343 144,423 258,662 ----------- ----------- ----------- 713,527 655,625 1,062,299 ----------- ----------- ----------- Net income (loss) $ 1,354,094 $ 490,669 $ (177,905) =========== =========== =========== Allocation of net income (loss): Managing general partner $ 13,541 $ 4,907 $ (1,779) =========== =========== =========== Limited partners $ 1,340,553 $ 485,762 $ (176,126) =========== =========== =========== Net income (loss) per limited partnership interest $ 119.17 $ 43.18 $ (15.66) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 11 1835 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------------- -------------- ---------------- Partners' capital at January 1, 1998 $ 20,944 $ 2,376,754 $ 2,397,698 Distributions (4,177) (413,535) (417,712) Net loss (1,779) (176,126) (177,905) ----------- ----------- ------------ Partners' capital at December 31, 1998 14,988 1,787,093 1,802,081 Distributions (4,861) (481,274) (486,135) Net income 4,907 485,762 490,669 ----------- ----------- ------------ Partners' capital at December 31, 1999 15,034 1,791,581 1,806,615 Distributions (13,380) (1,324,583) (1,337,963) Net income 13,541 1,340,553 1,354,094 ----------- ----------- ------------ Partners' capital at December 31, 2000 $ 15,195 $ 1,807,551 $ 1,822,746 ============ ============ =============
The accompanying notes are an integral part of these financial statements. 12 1836 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) STATEMENTS OF CASH FLOWS For the years ended December 31
2000 1999 1998 -------------- -------------- -------------- Cash flows from operations: Net income (loss) $ 1,354,094 $ 490,669 $ (177,905) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - - 295,542 Depletion 83,343 144,423 258,662 Gain on disposition of assets (2,273) - (197) Changes in assets and liabilities: Accounts receivable (84,212) (100,045) 39,758 Accounts payable (30,474) 18,933 (8,855) ----------- ----------- ----------- Net cash provided by operating activities 1,320,478 553,980 407,005 ----------- ----------- ----------- Cash flows from investing activities: Additions to oil and gas properties (12,408) (19,911) (24,381) Proceeds from asset dispositions 2,372 - 197 ----------- ----------- ----------- Net cash used in investing activities (10,036) (19,911) (24,184) ----------- ----------- ----------- Cash flows used in financing activities: Cash distributions to partners (1,337,963) (486,135) (417,712) ----------- ----------- ----------- Net increase (decrease) in cash (27,521) 47,934 (34,891) Cash at beginning of year 213,165 165,231 200,122 ----------- ----------- ----------- Cash at end of year $ 185,644 $ 213,165 $ 165,231 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 13 1837 PARKER & PARSLEY 91-B, L.P. (A Delaware Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS Parker & Parsley 91-B, L.P. (the "Partnership") is a limited partnership organized in 1991 under the laws of the State of Delaware. The Partnership's managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA"). 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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as evaluated by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for depletion are eliminated from the accounts and any gain or loss is included in results of operations. 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 long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. Use of estimates in the preparation of financial statements - Preparation of the accompanying financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests. Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. 14 1838 Statements of cash flows - For purposes of reporting cash flows, cash includes depository accounts held by banks. General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner. Allocated expenses are determined by the managing general partner based upon the level of activity of the Partnership relative to the non-partnership activities of the managing general partner. The method of allocation has been consistent over the past several years with certain modifications incorporated to reflect changes in Pioneer USA's overall business activities. Reclassifications - Certain reclassifications may have been made to the 1999 and 1998 financial statements to conform to the 2000 financial statement presentations. Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable. No such liabilities have been accrued as of December 31, 2000. Revenue recognition - The Partnership uses the entitlements method of accounting for oil, natural gas liquids ("NGLs") and natural gas revenues. NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with 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 December 31, 2000, 1999 and 1998, 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 industry. As a result, the Partnership recognized a non-cash impairment provision of $295,542 related to its proved oil and gas properties during 1998. 15 1839 NOTE 4. INCOME TAXES The financial statement basis of the Partnership's net assets and liabilities was $367,378 greater than the tax basis at December 31, 2000. The following is a reconciliation of net income (loss) per statements of operations with the net income (loss) per Federal income tax returns for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Net income (loss) per statements of operations $ 1,354,094 $ 490,669 $ (177,905) Depletion and depreciation provisions for tax reporting purposes greater than amounts for financial reporting purposes (27,307) (115,006) (139,323) Impairment of oil and gas properties for financial reporting purposes - - 295,542 Salvage income - - Intangible development costs capitalized for financial reporting purposes and expensed for tax reporting purposes (328) - - Other, net (2,832) (4,142) 4,532 ------------ ----------- ----------- Net income (loss) per Federal income tax returns $ 1,323,627 $ 371,521 $ (17,154) ============= ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES The following is a summary of the net costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31:
2000 1999 1998 -------------- -------------- -------------- Development costs $ 12,408 $ 19,911 $ 24,381 ============= ============ ============
Capitalized oil and gas properties consist of the following:
2000 1999 ---------------- ---------------- Property acquisition costs $ 949,486 $ 949,486 Completed wells and equipment 8,811,721 8,799,412 ------------- ------------- 9,761,207 9,748,898 Accumulated depletion (8,398,807) (8,315,464) ------------- ------------- Net oil and gas properties $ 1,362,400 $ 1,433,434 ============== ==============
NOTE 6. RELATED PARTY TRANSACTIONS Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 16 1840
2000 1999 1998 -------------- -------------- -------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 196,507 $ 189,784 $ 182,097 Reimbursement of general and administrative expenses $ 38,999 $ 33,982 $ 27,503
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Employees 91-B GP ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a general partnership organized for the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000. The costs and revenues of the Program are allocated to Pioneer USA and the Partnership as follows:
Pioneer USA (1) Partnership (1) --------------- --------------- Revenues: Proceeds from disposition of depreciable and depletable properties 34.3434343% 65.6565657% All other revenues 34.3434343% 65.6565657% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 24.2424242% 75.7575758% Operating costs, reporting and legal expenses and general and administrative expenses 34.3434343% 65.6565657%
(1) Includes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 10 limited partner interests owned by Pioneer USA. NOTE 7. OIL AND GAS INFORMATION (UNAUDITED) The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved developed and located within the United States. The Partnership's reserves are based on an evaluation prepared by Williamson Petroleum Consultants, Inc., an independent petroleum consultant, using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas (bbls) (mcf) ---------- ---------- Net proved reserves at January 1, 1998 803,868 767,367 Revisions (224,362) (91,817) Production (66,527) (68,244) ---------- ---------- Net proved reserves at December 31, 1998 512,979 607,306 Revisions 550,155 821,693 Production (65,056) (74,025) ---------- ---------- Net proved reserves at December 31, 1999 998,078 1,354,974 Revisions 113,248 (43,847) Production (69,550) (85,556) ---------- ---------- Net proved reserves at December 31, 2000 1,041,776 1,225,571 ========== ==========
17 1841 As of December 31, 2000, the estimated present value of future net revenues of proved reserves, calculated using December 31, 2000 prices of $26.64 per barrel of oil, $13.59 per barrel of NGLs and $7.73 per mcf of gas, discounted at 10% was approximately $8,364,000 and undiscounted was $17,283,000. Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this Report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves. The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available. Disclosures about Oil & Gas Producing Activities Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows is computed by applying year-end prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved oil and gas reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. A Federal income tax provision has not been calculated as the income of the Partnership is included in the individual Federal income tax returns of the respective partners. Discounted future cash flow estimates like those shown below are not intended to represent estimates of the fair value of oil and gas properties. Estimates of fair value should also consider anticipated future oil and gas prices, interest rates, changes in development and production costs and risks associated with future production. Because of these and other considerations, any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31, ------------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and gas producing activities: Future cash inflows $ 33,121 $ 24,943 $ 5,585 Future production costs (15,838) (13,003) (4,101) ------------- ------------ ------------- 17,283 11,940 1,484 10% annual discount factor (8,919) (6,088) (509) ------------- ------------ ------------- Standardized measure of discounted future net cash flows $ 8,364 $ 5,852 $ 975 ============== ============= ==============
18 1842
For the years ended December 31, ------------------------------------------------------- 2000 1999 1998 ---------------- ---------------- ---------------- (in thousands) Oil and Gas Producing Activities: Oil and gas sales, net of production costs $ (1,470) $ (694) $ (409) Net changes in prices and production costs 2,610 2,945 (1,842) Revisions of previous quantity estimates 721 4,406 (324) Accretion of discount 585 97 327 Changes in production rates, timing and other 66 (1,877) (45) ------------- ------------ ------------ Change in present value of future net revenues 2,512 4,877 (2,293) ------------- ------------ ------------ Balance, beginning of year 5,852 975 3,268 ------------- ------------ ------------ Balance, end of year $ 8,364 $ 5,852 $ 975 ============== ============= =============
NOTE 8. MAJOR CUSTOMERS The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the periods ended December 31:
2000 1999 1998 -------- -------- -------- Mobil Oil Corporation 48% 48% 48% Plains Marketing, L.P. 22% 23% - Genesis Crude Oil, L.P. - - 26% Western Gas Resources, Inc. 4% 6% 22%
At December 31, 2000, the amounts receivable from Mobil Oil Corporation and Plains Marketing, L.P. were $64,224 and $32,862, respectively, which are included in the caption "Accounts receivable - oil and gas sales" in the accompanying Balance Sheet. Pioneer USA is of the opinion that the loss of any one purchaser would not have an adverse effect on the ability of the Partnership to sell its oil, NGLs and gas production. NOTE 9. PARTNERSHIP AGREEMENT The following is a brief summary of the more significant provisions of the limited partnership agreement: Managing general partner - The managing general partner of the Partnership is Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all Partnership affairs. As managing general partner and operator of the Partnership's properties, all production expenses are incurred by Pioneer USA and billed to the Partnership. The majority of the Partnership's oil and gas revenues are received directly by the Partnership, however, a 19 1843 portion of the oil and gas revenue is initially received by Pioneer USA prior to being paid to the Partnership. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs, and 1% of its operating and general and administrative expenses. In return it is allocated 1% of the Partnership's revenues. Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits. Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $11,249,000. The managing general partner is required to contribute amounts equal to 1% of initial Partnership capital less sales commission costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 20 1844 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Set forth below are the names, ages and positions of the directors and executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 2000 Position ---- ---- -------- Scott D. Sheffield 48 President Timothy L. Dove 44 Executive Vice President, Chief Financial Officer and Director Dennis E. Fagerstone 51 Executive Vice President and Director Mark L. Withrow 53 Executive Vice President, General Counsel and Director Danny Kellum 46 Executive Vice President - Domestic Operations and Director Rich Dealy 34 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President of Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of Pioneer in August 1999. He served as a director of Pioneer USA from August 1997 until his resignation from the board in June 1999. Mr. Sheffield was the President and a director of Parker & Parsley Petroleum Company ("Parker & Parsley") from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company. 21 1845 Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago. He became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997 and was also appointed a director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa. Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas. Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in Petroleum Engineering from Texas Tech University in 1979, was elected Executive Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000 and Director of Pioneer USA on February 1, 2000. From January 2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served as Spraberry District Manager and as Vice President of the Spraberry and Permian Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker & Parsley as an operations engineer in 1981 after a brief career with Mobil Oil Corporation. Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit. 22 1846 ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. Management of the Partnership is performed by the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, Pioneer USA pays approximately 25% of the Program's acquisition, drilling and completion costs and approximately 35% of its operating and general and administrative expenses. In return, they are allocated approximately 35% of the Program's revenues. The Partnership does not directly pay any salaries of the executive officers or employees of Pioneer USA, but does pay a portion of Pioneer USA's general and administrative expenses of which these salaries are a part. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Beneficial owners of more than five percent The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. Pioneer USA owned 10 limited partner interests at January 1, 2001. (b) Security ownership of management The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of Pioneer USA who beneficially owns limited partnership interests in the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with the managing general partner Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner during the years ended December 31: 23 1847
2000 1999 1998 ------------- ------------- ------------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $ 196,507 $ 189,784 $ 182,097 Reimbursement of general and administrative expenses $ 38,999 $ 33,982 $ 27,503
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data", regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program. 24 1848 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial statements The following are filed as part of this Report: Independent Auditors' Report Balance sheets as of December 31, 2000 and 1999 Statements of operations for the years ended December 31, 2000, 1999 and 1998 Statements of partners' capital for the years ended December 31, 2000, 1999 and 1998 Statements of cash flows for the years ended December 31, 2000, 1999 and 1998 Notes to financial statements 2. Financial statement schedules All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required. (b) Reports on Form 8-K None. (c) Exhibits The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this Report. 25 1849 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 91-B, L.P. Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc. Managing General Partner By: /s/ Scott D. Sheffield -------------------------------- Scott D. Sheffield, President Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Scott D. Sheffield President of Pioneer USA March 27, 2001 -------------------------------------------- Scott D. Sheffield /s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001 -------------------------------------------- Financial Officer and Director of Timothy L. Dove Pioneer USA /s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001 -------------------------------------------- Director of Pioneer USA Dennis E. Fagerstone /s/ Mark L. Withrow Executive Vice President, General March 27, 2001 -------------------------------------------- Counsel and Director of Pioneer USA Mark L. Withrow /s/ Danny Kellum Executive Vice President - Domestic March 27, 2001 -------------------------------------------- Operations and Director of Pioneer Danny Kellum USA /s/ Rich Dealy Vice President and Chief Accounting March 27, 2001 -------------------------------------------- Officer of Pioneer USA Rich Dealy
26 1850 PARKER & PARSLEY 91-B, L.P. INDEX TO EXHIBITS The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ---- 3(a) Form of Agreement of Limited Partnership - of Parker & Parsley 91-B, L.P. incorporated by reference to Exhibit A of the Partnership's Registration Statement on Form S-1 (Registration No. 33-38582) (hereinafter called the Partnership's Registration Statement) 4(b) Form of Limited Partner Subscription Agreement - incorporated by reference to Exhibit C of the Partnership's Registration Statement 4(b) Form of General Partner Subscription Agreement - incorporated by reference to Exhibit D of the Partnership's Registration Statement 4(b) Power of Attorney incorporated by reference to - Exhibit B of the Partnership's Registration Statement 4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4.3 of Amendment No. 2 of the Partnership's Registration Statement 10(b) Development Drilling Program Agreement - incorporated by reference to Exhibit B of the Partnership's Registration Statement
27 1851 PARKER & PARSLEY 91-B, L.P. SELECTED FINANCIAL DATA The following selected financial data for the Partnership should be read in connection with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements included in the attached supplemental information.
Six months ended June 30, Years ended December 31, ----------------------- -------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating results: Oil and gas sales $ 732,727 $ 954,341 $2,046,224 $1,136,073 $ 873,012 $1,273,373 $1,632,595 ========== ========== ========== ========== ========== ========== ========== Impairment of oil and gas properties $ -- $ -- $ -- $ -- $ 295,542 $ 323,078 $ -- ========== ========== ========== ========== ========== ========== ========== Net income (loss) $ 394,776 $ 604,592 $1,354,094 $ 490,669 $ (177,905) $ 222,730 $ 924,002 ========== ========== ========== ========== ========== ========== ========== Allocation of net income (loss): Managing general partner $ 3,948 $ 6,046 $ 13,541 $ 4,907 $ (1,779) $ 2,227 $ 9,240 ========== ========== ========== ========== ========== ========== ========== Limited partners $ 390,828 $ 598,546 $1,340,553 $ 485,762 $ (176,126) $ 220,503 $ 914,762 ========== ========== ========== ========== ========== ========== ========== Limited partners' net income (loss) per limited partnership interest $ 34.74 $ 53.21 $ 119.17 $ 43.18 $ (15.66) $ 19.60 $ 81.32 ========== ========== ========== ========== ========== ========== ========== Limited partners' cash distributions per limited partnership interest $ 24.81 $ 48.76 $ 117.75 $ 42.78 $ 36.76 $ 75.32 $ 84.40 ========== ========== ========== ========== ========== ========== ========== As of period ended: Total assets $1,977,307 $1,907,509 $1,829,460 $1,843,803 $1,820,336 $2,424,808 $3,051,464 ========== ========== ========== ========== ========== ========== ==========
1852 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Article Twelfth of the Amended and Restated Certificate of Incorporation of Pioneer Parent provides that Pioneer Parent must indemnify its officers and directors to the extent allowed by the Delaware General Corporation Law. Pursuant to Section 145 of the Delaware General Corporation Law, Pioneer Parent generally has the power to indemnify its present and former directors and officers against expenses and liabilities incurred by them in connection with any suit to which they are, or are threatened to be made, a party by reason of their serving in those positions so long as they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of Pioneer Parent, and with respect to any criminal action, they had no reasonable cause to believe their conduct was unlawful. With respect to suits by or in the right of Pioneer Parent, however, indemnification is generally limited to attorneys' fees and other expenses and is not available if the person is adjudged to be liable to Pioneer Parent unless the court determines that indemnification is appropriate. The statute expressly provides that the power to indemnify authorized thereby is not exclusive of any rights granted under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. Pioneer Parent also has the power to purchase and maintain insurance for its directors and officers. Additionally, Article Twelfth of the Amended and Restated Certificate of Incorporation of Pioneer Parent provides that, in the event that an officer or director files suit against Pioneer Parent seeking indemnification of liabilities or expenses incurred, the burden will be on Pioneer Parent to prove that the indemnification would not be permitted under the Delaware General Corporation Law. Pioneer Parent has entered into indemnification agreements with each of its directors and officers. These agreements provide that Pioneer Parent must, within 30 days of a request, indemnify an officer or director for liabilities incurred to the fullest extent permitted by the Delaware General Corporation Law. Pioneer Parent must, within two days of a request, indemnify an officer or director for expenses incurred in the defense of a claim or other proceeding. The obligation of Pioneer Parent to provide the indemnification does not apply if, before the date on which Pioneer Parent must provide the indemnification, Pioneer Parent's board of directors, or a representative chosen by the board of directors, concludes that indemnification would be improper under the Delaware General Corporation Law. The preceding discussion of Pioneer Parent's Amended and Restated Certificate of Incorporation, Section 145 of the Delaware General Corporation Law, and the indemnification agreements is not intended to be exhaustive and is qualified in its entirety by such Amended and Restated Certificate of Incorporation, Section 145 of the Delaware General Corporation Law, and such indemnification agreements. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following exhibits are filed with the registration statement:
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 2.1 Agreement and Plan of Merger dated as of September 20, 2001, among Pioneer Parent, Pioneer USA and the partnerships named therein (included as Appendix F to the proxy statement/ prospectus forming a part of this Registration Statement). 3.1 Amended and Restated Certificate of Incorporation of Pioneer Parent (incorporated by reference to Exhibit 3.1 to Pioneer Parent's Registration Statement on Form S-4 dated June 27, 1997, Registration No. 333-26951). 3.2 Restated Bylaws of Pioneer Parent (incorporated by reference to Exhibit 3.2 to Pioneer Parent's Registration Statement on Form S-4 dated June 27, 1997, Registration No. 333-26951). 3.3 Certificate of Designations of Special Preferred Voting Stock (incorporated by reference to Exhibit 3.3 of Pioneer Parent's Registration Statement on Form S-3, Registration No. 333-42315, filed with the SEC on December 17, 1997).
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EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 3.4 Terms and Conditions of Exchangeable Shares (incorporated by reference to Annex F to the Definitive Joint Management Information Circular and Proxy Statement of Pioneer Parent and Chauvco, File No. 001-13245, filed with the SEC on November 17, 1997). 3.5 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit A to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form 8-A, File No. 001-13245, filed with the SEC on July 24, 2001). 4.1 Form of Certificate of Common Stock, par value $.01 per share, of Pioneer Parent (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-4 dated June 27, 1997, Registration No. 333-26951). 4.2 Form of Certificate of Special Preferred Voting Stock (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 4.3 Form of Certificate of Exchangeable Shares (incorporated by reference to Exhibit 4.2 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 4.4 Rights Agreement dated July 24, 2001, between Pioneer Parent and Continental Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form 8-A, File No. 001-13245, filed with the SEC on July 24, 2001). 5.1* Opinion of Vinson & Elkins L.L.P. as to the legality of the securities to be registered. 8.1* Opinion of Vinson & Elkins L.L.P., regarding tax matters. 8.2* Opinion of Stradley Ronon Stevens & Young L.L.P., as special legal counsel to the limited partners, regarding tax and other matters as required by the partnership agreement of each partnership (included as Exhibit A to Appendix E to the proxy statement/prospectus forming a part of this Registration Statement). 9.1 Voting and Exchange Trust Agreement dated as of December 18, 1997, among Pioneer Parent, Pioneer Natural Resources (Canada) Ltd. and Montreal Trust Company of Canada, as trustee (incorporated by reference to Exhibit 2.4 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.1 Indenture dated July 2, 1996, among Pioneer USA (formerly Mesa Operating Co. ("MOC")), as issuer, Pioneer Parent, as guarantor, and Harris Trust and Savings Bank, as trustee, relating to the 11 5/8% Senior Subordinated Discount Notes Due 2006 (incorporated by reference to Exhibit 4.17 to MESA Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 1996). 10.2 First Supplemental Indenture dated as of April 15, 1997, among Pioneer USA (formerly MOC), as issuer, MESA Inc. ("Mesa"), the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.1 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.3 Second Supplemental Indenture dated as of August 7, 1997, among Pioneer USA (formerly MOC), as issuer, Mesa, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.2 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245).
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EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.4 Third Supplemental Indenture dated as of December 18, 1997, among Pioneer USA, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.12 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.5 Fourth Supplemental Indenture dated as of December 30, 1997, among Pioneer USA (formerly MOC), Pioneer Parent, Pioneer NewSub1, Inc. and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.13 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.6 Fifth Supplemental Indenture dated as of December 30, 1997, among Pioneer NewSub1, Inc. (as successor to Pioneer USA), Pioneer Parent, Pioneer DebtCo., Inc. and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.14 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.7 Sixth Supplemental Indenture dated as of December 30, 1997, among Pioneer DebtCo. Inc. (as successor to Pioneer NewSub1, Inc.), Pioneer Parent, and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.15 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.8 Indenture dated July 2, 1996, among Pioneer USA (formerly MOC), as issuer, Pioneer Parent (as Mesa's successor), as guarantor, and Harris Trust and Savings Bank, as trustee, relating to the 10 5/8% Senior Subordinated Notes Due 2006 (incorporated by reference to Exhibit 4.18 to Mesa's Quarterly Report on Form 10-Q for the period ended June 30, 1996). 10.9 First Supplemental Indenture dated as of April 15, 1997, among Pioneer USA (formerly MOC), as issuer, Mesa, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.3 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.10 Second Supplemental Indenture dated as of August 7, 1997, among Pioneer USA (formerly MOC), as issuer, Mesa, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.4 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.11 Third Supplemental Indenture dated as of December 18, 1997, among Pioneer USA, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.6 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.12 Fourth Supplemental Indenture dated as of December 30, 1997, among Pioneer USA, Pioneer Parent, Pioneer NewSub1, Inc. and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.7 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998).
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EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.13 Fifth Supplemental Indenture dated as of December 30, 1997, among Pioneer NewSub1, Inc. (as successor to Pioneer USA), Pioneer Parent, Pioneer DebtCo, Inc. and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.8 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.14 Sixth Supplemental Indenture dated as of December 30, 1997, among Pioneer DebtCo, Inc. (as successor to Pioneer NewSub1, Inc.), Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.9 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.15 Indenture dated April 12, 1995, between Pioneer USA (successor to Parker & Parsley Petroleum Company ("Parker & Parsley")) and The Chase Manhattan Bank (National Association), as trustee (incorporated by reference to Exhibit 4.1 to Parker & Parsley's Current Report on Form 8-K dated April 12, 1995, File No. 1-10695). 10.16 First Supplemental Indenture dated as of August 7, 1997, among Parker & Parsley, The Chase Manhattan Bank, as trustee, and Pioneer USA, with respect to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.5 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.17 Second Supplemental Indenture dated as of December 30, 1997, among Pioneer USA, Pioneer NewSub1, Inc. and The Chase Manhattan Bank, as trustee, with respect to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.17 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.18 Third Supplemental Indenture dated as of December 30, 1997, among Pioneer NewSub1, Inc. (as successor to Pioneer USA), Pioneer DebtCo, Inc. and The Chase Manhattan Bank, as trustee, with respect to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.18 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.19 Fourth Supplemental Indenture dated as of December 30, 1997, among Pioneer DebtCo, Inc. (as successor to Pioneer NewSub1, Inc., as successor to Pioneer USA), Pioneer Parent, Pioneer USA and The Chase Manhattan Bank, as trustee, with respect to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.19 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.20 Guarantee dated as of December 30, 1997, by Pioneer USA relating to $150,000,000 in aggregate principal amount of 8 7/8% Senior Notes due 2005 and $150,000,000 in aggregate principal amount of 8 1/4% Senior Notes due 2007 issued under the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.20 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.21 Form of 8 7/8% Senior Notes Due 2005 dated as of April 12, 1995, in the aggregate principal amount of $150,000,000, together with Officers' Certificate dated April 12, 1995, establishing the terms of the 8 7/8% Senior Notes Due 2005 pursuant to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 4.2 to Parker & Parsley's Quarterly Report on Form 10-Q for the period ended June 30, 1995, File No. 001-10695).
II-4 1856
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.22 Form of 8 1/4% Senior Notes due 2007 dated as of August 22, 1995, in the aggregate principal amount of $150,000,000, together with Officers' Certificate dated August 22, 1995, establishing the terms of the 8 1/4% Senior Notes due 2007 pursuant to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 1.2 to Parker & Parsley's Current Report on Form 8-K dated August 17, 1995, File No. 001-10695). 10.23 Indenture dated January 13, 1998, between Pioneer Parent and The Bank of New York, as trustee (incorporated by reference to Exhibit 99.1 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.24 First Supplemental Indenture dated as of January 13, 1998, among Pioneer Parent, Pioneer USA, as the subsidiary guarantor, and The Bank of New York, as trustee, with respect to the indenture identified above as Exhibit 10.23 (incorporated by reference to Exhibit 99.2 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.25 Form of 6.50% Senior Notes Due 2008 of Pioneer Parent (incorporated by reference to Exhibit 99.3 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.26 Form of 7.20% Senior Notes Due 2028 of Pioneer Parent (incorporated by reference to Exhibit 99.4 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.27 Guarantee (2008 Notes) dated as of January 13, 1998, entered into by Pioneer USA (incorporated by reference to Exhibit 99.5 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.28 Guarantee (2028 Notes) dated as of January 13, 1998, entered into by Pioneer USA (incorporated by reference to Exhibit 99.6 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.29 1991 Stock Option Plan of Mesa (incorporated by reference to Exhibit 10(v) to Mesa's Annual Report on Form 10-K for the period ended December 31, 1991). 10.30 1996 Incentive Plan of Mesa (incorporated by reference to Exhibit 10.28 to Pioneer Parent's Registration Statement on Form S-4 dated June 27, 1997, Registration No. 333-26951). 10.31 Parker & Parsley Long-Term Incentive Plan dated February 19, 1991 (incorporated by reference to Exhibit 4.1 to Parker & Parsley's Registration Statement on Form S-8, Registration No. 33-38971). 10.32 First Amendment to the Parker & Parsley Long-Term Incentive Plan dated August 23, 1991 (incorporated by reference to Exhibit 10.2 to Parker & Parsley's Registration Statement on Form S-1 dated February 28, 1992, Registration No. 33-46082). 10.33 Pioneer Parent's Long-Term Incentive Plan (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-8, Registration No. 333-35087). 10.34 First Amendment to Pioneer Parent's Long-Term Incentive Plan, effective as of November 23, 1998 (incorporated by reference to Exhibit 10.72 to Pioneer Parent's Annual Report on Form 10-K for the period ended December 31, 1999, File No. 001-13245.
II-5 1857
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.35 Amendment No. 2 to Pioneer Parent's Long-Term Incentive Plan, effective as of May 20, 1998 (incorporated by reference to Exhibit 10.73 to Pioneer Parent's Annual Report on Form 10-K for the period ended December 31, 1999, File No. 001-13245). 10.36 Amendment No. 3 to Pioneer Parent's Long-Term Incentive Plan, effective as of February 17, 2000 (incorporated by reference to Exhibit 10.76 to Pioneer Parent's Annual Report on Form 10-K for the period ended December 31, 1999, File No. 001-13245). 10.37 Pioneer Parent's Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-8, Registration No. 333-35165). 10.38 Amendment No. 1 to Pioneer Parent's Employee Stock Purchase Plan dated December 9, 1998 (incorporated by reference to Pioneer Parent's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 001-13245). 10.39 Amendment No. 2 to Pioneer Parent's Employee Stock Purchase Plan dated December 14, 1999 (incorporated by reference to Exhibit 10.74 to Pioneer Parent's Annual Report on Form 10-K for the period ended December 31, 1999, File No. 001-13245). 10.40 Pioneer Parent's Deferred Compensation Retirement Plan (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-8, Registration No. 333-39153). 10.41 Pioneer USA 401(k) Plan (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-8, Registration No. 333-39249). 10.42 Pioneer USA Matching Plan (incorporated by reference to Exhibit 10.42 to Pioneer Parent's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 001-13245). 10.43 Omnibus Amendment to Nonstatutory Stock Option Agreements, included as part of the Parker & Parsley Long-Term Incentive Plan dated as of November 16, 1995, between Parker & Parsley and named executive officers identified on Schedule 1 thereto, setting forth additional details relating to the Parker & Parsley Long-Term Incentive Plan (incorporated by reference to Parker & Parsley's Annual Report on Form 10-K for the period ended December 31, 1995, File No. 001-10695). 10.44 Severance Agreement dated as of August 8, 1997, between Pioneer Parent and Scott D. Sheffield, together with a schedule identifying substantially identical agreements between Pioneer Parent and each of the other named executive officers identified on Schedule I, for the purpose of defining the payment of certain benefits upon the termination of the officer's employment under certain circumstances (incorporated by reference to Exhibit 10.7 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.45 Indemnification Agreement dated as of August 8, 1997, between Pioneer Parent and Scott D. Sheffield, together with a schedule identifying substantially identical agreements between Pioneer Parent and each of Pioneer Parent's other directors and named executive officers identified on Schedule I thereto (incorporated by reference to Exhibit 10.8 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.46 "B" Contract Production Allocation Agreement dated July 29, 1991, and effective as of January 1, 1991, between Colorado Interstate Gas Company and Mesa Operating Limited Partnership (incorporated by reference to Exhibit 10(r) to Mesa's Annual Report on Form 10-K for the period ended December 31, 1991).
II-6 1858
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.47 Amendment to "B" Contract Production Allocation Agreement effective as of January 1, 1993, between Colorado Interstate Gas Company and Mesa Operating Limited Partnership (incorporated by reference to Exhibit 10.24 to Mesa's Registration Statement on Form S-1, Registration No. 33-51909). 10.48 Voting and Shareholders Agreement dated as of February 8, 2000, among Prize Energy Corp. and its stockholders (incorporated by reference to Exhibit 10.1 to Pioneer Parent's statement on Schedule 13D relating to common stock of Prize Energy Corp., filed with the SEC on February 18, 2000, File No. 005-54797). 10.49 Second Supplemental Indenture dated as of April 11, 2000, among Pioneer Parent, Pioneer USA, as the subsidiary guarantor, and the Bank of New York, as trustee, with respect to the Indenture dated January 13, 1998, between Pioneer Parent and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.1 to Pioneer Parent's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.50 Form of 9 5/8% Senior Notes Due April 1, 2010 dated as of April 11, 2000, in the aggregate principal amount of $425,000,000, together with Trustee's Certificate of Authentication dated April 11, 2000, establishing the terms of the 9 5/8% Senior Notes Due April 1, 2010 pursuant to the Second Supplemental Indenture identified above as Exhibit 10.49 (incorporated by reference to Exhibit 10.2 to Pioneer Parent's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.51 Guarantee, dated as of April 11, 2000, by Pioneer USA, as the subsidiary guarantor, relating to the $425,000,000 aggregate principal amount of 9 5/8% Senior Notes Due April 1, 2010 issued under the Second Supplemental Indenture identified above as Exhibit 10.49 (incorporated by reference to Exhibit 10.3 to Pioneer Parent's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.52 $575,000,000 Credit Agreement dated as of May 31, 2000, among Pioneer Parent, as the borrower, Bank of America, N.A., as the administrative agent, Credit Suisse First Boston, as the documentation agent, The Chase Manhattan Bank, as the syndication agent, and certain lenders (incorporated by reference to Exhibit 10.4 to Pioneer Parent's Quarterly Report on Form 10-Q, filed with the SEC on August 9, 2000). 10.53 Agreement and Plan of Merger dated as of November 28, 2000, among Pioneer Parent, Pioneer USA, Parker & Parsley Employees Producing Properties 87-A, Ltd., Parker & Parsley Employees Producing Properties 87-B Ltd., P&P Employees Producing Properties 88-A, L.P., P&P Employees 89-A Conv., L.P., P&P Employees 89-B Conv., L.P., P&P Employees Private 89, L.P., P&P Employees 90-A Conv., L.P., P& P Employees 90-B Conv., L.P., P&P Employees 90-C Conv., L.P., P&P Employees Private 90, L.P., P&P Employees 90 Spraberry Private Development, L.P., P&P Employees 91-A Conv., L.P. and P&P Employees 91-B Conv., L.P. (incorporated by reference to Exhibit 10.53 to Pioneer Parent's Annual Report on Form 10-K, filed with the SEC on February 27, 2001). 23.1* Consent of Vinson & Elkins L.L.P. (included in the opinions filed as Exhibits 5.1 and 8.1 to this Registration Statement). 23.2* Consent of Stradley Ronon Stevens & Young L.L.P. (included in the opinion filed as Exhibit 8.2 to this Registration Statement). 23.3* Consent of Arter & Hadden LLP (included in the opinion attached to the opinion filed as Exhibit 8.2 to this Registration Statement).
II-7 1859
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 23.4* Consent of Ernst & Young LLP. 23.5* Consent of Williamson Petroleum Consultants, Inc. 24.1# Powers of Attorney of directors and officers of Pioneer Parent. 99.1 Opinion of Robert A. Stanger & Co, Inc. (included as Appendix D to the proxy statement/ prospectus forming a part of this Registration Statement). 99.2* Consent of Robert A. Stanger & Co., Inc. 99.3* Form of Certification of Non-Foreign Status for Individual Partners. 99.4* Form of Certification of Non-Foreign Status for Individual Partners that are Entities. 99.5* Form of Proxy for Special Meeting of Limited Partners of Each of 46 Parker & Parsley Limited Partnerships. 99.6* Form of Letter to Custodians and Consent. 99.7* Agreement dated June 14, 2001, between Pioneer Parent and D.F. King & Co., Inc. 99.8* Form of Letter to Brokers. 99.9* Form of Notice of Multiple Proxies. 99.10* Form of Mailing Envelope. 99.11* Form of Return Envelope. 99.12* Frequently Asked Questions Regarding the Proposed Mergers of Parker & Parsley Limited Partnerships (for use in responding to telephone inquiries only).
--------------- * Filed herewith. # Previously filed. ITEM 22. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Pioneer Parent pursuant to the foregoing provisions, or otherwise, Pioneer Parent has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by Pioneer Parent of expenses incurred or paid by a director, officer or controlling person of Pioneer Parent in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered, Pioneer Parent will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. Pioneer Parent hereby undertakes: (1) That, for purposes of determining any liability under the Securities Act of 1933, each filing of Pioneer Parent's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new II-8 1860 registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (2) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), Pioneer Parent undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form; (3) That every prospectus: (a) that is filed pursuant to paragraph (3) immediately preceding, or (b) that purports to meet the requirements of Section 10(a)(3) of the Securities Exchange Act of 1934 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (4) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request; and (5) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-9 1861 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Pioneer Natural Resources Company has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irving, State of Texas, on September 21, 2001. PIONEER NATURAL RESOURCES COMPANY By: /s/ Scott D. Sheffield ------------------------------------------ Scott D. Sheffield Chairman of the Board of Directors, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the Board of Directors, September 21, 2001 ----------------------------------------------------- President and Chief Executive Officer Scott D. Sheffield (principal executive officer) * Executive Vice President and Chief September 21, 2001 ----------------------------------------------------- Financial Officer (principal financial Timothy L. Dove officer) * Vice President and Chief Accounting September 21, 2001 ----------------------------------------------------- Officer (principal accounting officer) Richard P. Dealy * Director September 21, 2001 ----------------------------------------------------- James R. Baroffio * Director September 21, 2001 ----------------------------------------------------- R. Hartwell Gardner * Director September 21, 2001 ----------------------------------------------------- James L. Houghton * Director September 21, 2001 ----------------------------------------------------- Jerry P. Jones * Director September 21, 2001 ----------------------------------------------------- Charles E. Ramsey, Jr. *By: /s/ Mark L. Withrow ------------------------------------------------- Mark L. Withrow Attorney-in-fact
II-10 1862 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 2.1 Agreement and Plan of Merger dated as of September 20, 2001, among Pioneer Parent, Pioneer USA and the partnerships named therein (included as Appendix F to the proxy statement/ prospectus forming a part of this Registration Statement). 3.1 Amended and Restated Certificate of Incorporation of Pioneer Parent (incorporated by reference to Exhibit 3.1 to Pioneer Parent's Registration Statement on Form S-4 dated June 27, 1997, Registration No. 333-26951). 3.2 Restated Bylaws of Pioneer Parent (incorporated by reference to Exhibit 3.2 to Pioneer Parent's Registration Statement on Form S-4 dated June 27, 1997, Registration No. 333-26951). 3.3 Certificate of Designations of Special Preferred Voting Stock (incorporated by reference to Exhibit 3.3 of Pioneer Parent's Registration Statement on Form S-3, Registration No. 333-42315, filed with the SEC on December 17, 1997). 3.4 Terms and Conditions of Exchangeable Shares (incorporated by reference to Annex F to the Definitive Joint Management Information Circular and Proxy Statement of Pioneer Parent and Chauvco, File No. 001-13245, filed with the SEC on November 17, 1997). 3.5 Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit A to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form 8-A, File No. 001-13245, filed with the SEC on July 24, 2001). 4.1 Form of Certificate of Common Stock, par value $.01 per share, of Pioneer Parent (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-4 dated June 27, 1997, Registration No. 333-26951). 4.2 Form of Certificate of Special Preferred Voting Stock (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 4.3 Form of Certificate of Exchangeable Shares (incorporated by reference to Exhibit 4.2 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 4.4 Rights Agreement dated July 24, 2001, between Pioneer Parent and Continental Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form 8-A, File No. 001-13245, filed with the SEC on July 24, 2001). 5.1* Opinion of Vinson & Elkins L.L.P. as to the legality of the securities to be registered. 8.1* Opinion of Vinson & Elkins L.L.P., regarding tax matters. 8.2* Opinion of Stradley Ronon Stevens & Young L.L.P., as special legal counsel to the limited partners, regarding tax and other matters as required by the partnership agreement of each partnership (included as Exhibit A to Appendix E to the proxy statement/prospectus forming a part of this Registration Statement). 9.1 Voting and Exchange Trust Agreement dated as of December 18, 1997, among Pioneer Parent, Pioneer Natural Resources (Canada) Ltd. and Montreal Trust Company of Canada, as trustee (incorporated by reference to Exhibit 2.4 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998).
1863
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.1 Indenture dated July 2, 1996, among Pioneer USA (formerly Mesa Operating Co. ("MOC")), as issuer, Pioneer Parent, as guarantor, and Harris Trust and Savings Bank, as trustee, relating to the 11 5/8% Senior Subordinated Discount Notes Due 2006 (incorporated by reference to Exhibit 4.17 to MESA Inc.'s Quarterly Report on Form 10-Q for the period ended June 30, 1996). 10.2 First Supplemental Indenture dated as of April 15, 1997, among Pioneer USA (formerly MOC), as issuer, MESA Inc. ("Mesa"), the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.1 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.3 Second Supplemental Indenture dated as of August 7, 1997, among Pioneer USA (formerly MOC), as issuer, Mesa, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.2 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.4 Third Supplemental Indenture dated as of December 18, 1997, among Pioneer USA, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.12 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.5 Fourth Supplemental Indenture dated as of December 30, 1997, among Pioneer USA (formerly MOC), Pioneer Parent, Pioneer NewSub1, Inc. and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.13 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.6 Fifth Supplemental Indenture dated as of December 30, 1997, among Pioneer NewSub1, Inc. (as successor to Pioneer USA), Pioneer Parent, Pioneer DebtCo., Inc. and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.14 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.7 Sixth Supplemental Indenture dated as of December 30, 1997, among Pioneer DebtCo. Inc. (as successor to Pioneer NewSub1, Inc.), Pioneer Parent, and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.15 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.8 Indenture dated July 2, 1996, among Pioneer USA (formerly MOC), as issuer, Pioneer Parent (as Mesa's successor), as guarantor, and Harris Trust and Savings Bank, as trustee, relating to the 10 5/8% Senior Subordinated Notes Due 2006 (incorporated by reference to Exhibit 4.18 to Mesa's Quarterly Report on Form 10-Q for the period ended June 30, 1996). 10.9 First Supplemental Indenture dated as of April 15, 1997, among Pioneer USA (formerly MOC), as issuer, Mesa, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.3 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245).
1864
EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.10 Second Supplemental Indenture dated as of August 7, 1997, among Pioneer USA (formerly MOC), as issuer, Mesa, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.4 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.11 Third Supplemental Indenture dated as of December 18, 1997, among Pioneer USA, the subsidiary guarantors named therein, Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.6 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.12 Fourth Supplemental Indenture dated as of December 30, 1997, among Pioneer USA, Pioneer Parent, Pioneer NewSub1, Inc. and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.7 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.13 Fifth Supplemental Indenture dated as of December 30, 1997, among Pioneer NewSub1, Inc. (as successor to Pioneer USA), Pioneer Parent, Pioneer DebtCo, Inc. and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.8 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.14 Sixth Supplemental Indenture dated as of December 30, 1997, among Pioneer DebtCo, Inc. (as successor to Pioneer NewSub1, Inc.), Pioneer Parent and Harris Trust and Savings Bank, as trustee, with respect to the indenture identified above as Exhibit 10.8 (incorporated by reference to Exhibit 10.9 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.15 Indenture dated April 12, 1995, between Pioneer USA (successor to Parker & Parsley Petroleum Company ("Parker & Parsley")) and The Chase Manhattan Bank (National Association), as trustee (incorporated by reference to Exhibit 4.1 to Parker & Parsley's Current Report on Form 8-K dated April 12, 1995, File No. 1-10695). 10.16 First Supplemental Indenture dated as of August 7, 1997, among Parker & Parsley, The Chase Manhattan Bank, as trustee, and Pioneer USA, with respect to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.5 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.17 Second Supplemental Indenture dated as of December 30, 1997, among Pioneer USA, Pioneer NewSub1, Inc. and The Chase Manhattan Bank, as trustee, with respect to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.17 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.18 Third Supplemental Indenture dated as of December 30, 1997, among Pioneer NewSub1, Inc. (as successor to Pioneer USA), Pioneer DebtCo, Inc. and The Chase Manhattan Bank, as trustee, with respect to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.18 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.19 Fourth Supplemental Indenture dated as of December 30, 1997, among Pioneer DebtCo, Inc. (as successor to Pioneer NewSub1, Inc., as successor to Pioneer USA), Pioneer Parent, Pioneer USA and The Chase Manhattan Bank, as trustee, with respect to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.19 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998).
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EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.20 Guarantee dated as of December 30, 1997, by Pioneer USA relating to $150,000,000 in aggregate principal amount of 8 7/8% Senior Notes due 2005 and $150,000,000 in aggregate principal amount of 8 1/4% Senior Notes due 2007 issued under the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 10.20 to Pioneer Parent's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 2, 1998). 10.21 Form of 8 7/8% Senior Notes Due 2005 dated as of April 12, 1995, in the aggregate principal amount of $150,000,000, together with Officers' Certificate dated April 12, 1995, establishing the terms of the 8 7/8% Senior Notes Due 2005 pursuant to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 4.2 to Parker & Parsley's Quarterly Report on Form 10-Q for the period ended June 30, 1995, File No. 001-10695). 10.22 Form of 8 1/4% Senior Notes due 2007 dated as of August 22, 1995, in the aggregate principal amount of $150,000,000, together with Officers' Certificate dated August 22, 1995, establishing the terms of the 8 1/4% Senior Notes due 2007 pursuant to the indenture identified above as Exhibit 10.15 (incorporated by reference to Exhibit 1.2 to Parker & Parsley's Current Report on Form 8-K dated August 17, 1995, File No. 001-10695). 10.23 Indenture dated January 13, 1998, between Pioneer Parent and The Bank of New York, as trustee (incorporated by reference to Exhibit 99.1 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.24 First Supplemental Indenture dated as of January 13, 1998, among Pioneer Parent, Pioneer USA, as the subsidiary guarantor, and The Bank of New York, as trustee, with respect to the indenture identified above as Exhibit 10.23 (incorporated by reference to Exhibit 99.2 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.25 Form of 6.50% Senior Notes Due 2008 of Pioneer Parent (incorporated by reference to Exhibit 99.3 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.26 Form of 7.20% Senior Notes Due 2028 of Pioneer Parent (incorporated by reference to Exhibit 99.4 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.27 Guarantee (2008 Notes) dated as of January 13, 1998, entered into by Pioneer USA (incorporated by reference to Exhibit 99.5 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.28 Guarantee (2028 Notes) dated as of January 13, 1998, entered into by Pioneer USA (incorporated by reference to Exhibit 99.6 to Pioneer Parent's and Pioneer USA's Current Report on Form 8-K, File No. 001-13245, filed with the SEC on January 14, 1998). 10.29 1991 Stock Option Plan of Mesa (incorporated by reference to Exhibit 10(v) to Mesa's Annual Report on Form 10-K for the period ended December 31, 1991). 10.30 1996 Incentive Plan of Mesa (incorporated by reference to Exhibit 10.28 to Pioneer Parent's Registration Statement on Form S-4 dated June 27, 1997, Registration No. 333-26951). 10.31 Parker & Parsley Long-Term Incentive Plan dated February 19, 1991 (incorporated by reference to Exhibit 4.1 to Parker & Parsley's Registration Statement on Form S-8, Registration No. 33-38971). 10.32 First Amendment to the Parker & Parsley Long-Term Incentive Plan dated August 23, 1991 (incorporated by reference to Exhibit 10.2 to Parker & Parsley's Registration Statement on Form S-1 dated February 28, 1992, Registration No. 33-46082).
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EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.33 Pioneer Parent's Long-Term Incentive Plan (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-8, Registration No. 333-35087). 10.34 First Amendment to Pioneer Parent's Long-Term Incentive Plan, effective as of November 23, 1998 (incorporated by reference to Exhibit 10.72 to Pioneer Parent's Annual Report on Form 10-K for the period ended December 31, 1999, File No. 001-13245. 10.35 Amendment No. 2 to Pioneer Parent's Long-Term Incentive Plan, effective as of May 20, 1998 (incorporated by reference to Exhibit 10.73 to Pioneer Parent's Annual Report on Form 10-K for the period ended December 31, 1999, File No. 001-13245). 10.36 Amendment No. 3 to Pioneer Parent's Long-Term Incentive Plan, effective as of February 17, 2000 (incorporated by reference to Exhibit 10.76 to Pioneer Parent's Annual Report on Form 10-K for the period ended December 31, 1999, File No. 001-13245). 10.37 Pioneer Parent's Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-8, Registration No. 333-35165). 10.38 Amendment No. 1 to Pioneer Parent's Employee Stock Purchase Plan dated December 9, 1998 (incorporated by reference to Pioneer Parent's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 001-13245). 10.39 Amendment No. 2 to Pioneer Parent's Employee Stock Purchase Plan dated December 14, 1999 (incorporated by reference to Exhibit 10.74 to Pioneer Parent's Annual Report on Form 10-K for the period ended December 31, 1999, File No. 001-13245). 10.40 Pioneer Parent's Deferred Compensation Retirement Plan (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-8, Registration No. 333-39153). 10.41 Pioneer USA 401(k) Plan (incorporated by reference to Exhibit 4.1 to Pioneer Parent's Registration Statement on Form S-8, Registration No. 333-39249). 10.42 Pioneer USA Matching Plan (incorporated by reference to Exhibit 10.42 to Pioneer Parent's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 001-13245). 10.43 Omnibus Amendment to Nonstatutory Stock Option Agreements, included as part of the Parker & Parsley Long-Term Incentive Plan dated as of November 16, 1995, between Parker & Parsley and named executive officers identified on Schedule 1 thereto, setting forth additional details relating to the Parker & Parsley Long-Term Incentive Plan (incorporated by reference to Parker & Parsley's Annual Report on Form 10-K for the period ended December 31, 1995, File No. 001-10695). 10.44 Severance Agreement dated as of August 8, 1997, between Pioneer Parent and Scott D. Sheffield, together with a schedule identifying substantially identical agreements between Pioneer Parent and each of the other named executive officers identified on Schedule I, for the purpose of defining the payment of certain benefits upon the termination of the officer's employment under certain circumstances (incorporated by reference to Exhibit 10.7 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245). 10.45 Indemnification Agreement dated as of August 8, 1997, between Pioneer Parent and Scott D. Sheffield, together with a schedule identifying substantially identical agreements between Pioneer Parent and each of Pioneer Parent's other directors and named executive officers identified on Schedule I thereto (incorporated by reference to Exhibit 10.8 to Pioneer Parent's Quarterly Report on Form 10-Q for the period ended September 30, 1997, File No. 001-13245).
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EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 10.46 "B" Contract Production Allocation Agreement dated July 29, 1991, and effective as of January 1, 1991, between Colorado Interstate Gas Company and Mesa Operating Limited Partnership (incorporated by reference to Exhibit 10(r) to Mesa's Annual Report on Form 10-K for the period ended December 31, 1991). 10.47 Amendment to "B" Contract Production Allocation Agreement effective as of January 1, 1993, between Colorado Interstate Gas Company and Mesa Operating Limited Partnership (incorporated by reference to Exhibit 10.24 to Mesa's Registration Statement on Form S-1, Registration No. 33-51909). 10.48 Voting and Shareholders Agreement dated as of February 8, 2000, among Prize Energy Corp. and its stockholders (incorporated by reference to Exhibit 10.1 to Pioneer Parent's statement on Schedule 13D relating to common stock of Prize Energy Corp., filed with the SEC on February 18, 2000, File No. 005-54797). 10.49 Second Supplemental Indenture dated as of April 11, 2000, among Pioneer Parent, Pioneer USA, as the subsidiary guarantor, and the Bank of New York, as trustee, with respect to the Indenture dated January 13, 1998, between Pioneer Parent and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.1 to Pioneer Parent's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.50 Form of 9 5/8% Senior Notes Due April 1, 2010 dated as of April 11, 2000, in the aggregate principal amount of $425,000,000, together with Trustee's Certificate of Authentication dated April 11, 2000, establishing the terms of the 9 5/8% Senior Notes Due April 1, 2010 pursuant to the Second Supplemental Indenture identified above as Exhibit 10.49 (incorporated by reference to Exhibit 10.2 to Pioneer Parent's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.51 Guarantee, dated as of April 11, 2000, by Pioneer USA, as the subsidiary guarantor, relating to the $425,000,000 aggregate principal amount of 9 5/8% Senior Notes Due April 1, 2010 issued under the Second Supplemental Indenture identified above as Exhibit 10.49 (incorporated by reference to Exhibit 10.3 to Pioneer Parent's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.52 $575,000,000 Credit Agreement dated as of May 31, 2000, among Pioneer Parent, as the borrower, Bank of America, N.A., as the administrative agent, Credit Suisse First Boston, as the documentation agent, The Chase Manhattan Bank, as the syndication agent, and certain lenders (incorporated by reference to Exhibit 10.4 to Pioneer Parent's Quarterly Report on Form 10-Q, filed with the SEC on August 9, 2000). 10.53 Agreement and Plan of Merger dated as of November 28, 2000, among Pioneer Parent, Pioneer USA, Parker & Parsley Employees Producing Properties 87-A, Ltd., Parker & Parsley Employees Producing Properties 87-B Ltd., P&P Employees Producing Properties 88-A, L.P., P&P Employees 89-A Conv., L.P., P&P Employees 89-B Conv., L.P., P&P Employees Private 89, L.P., P&P Employees 90-A Conv., L.P., P& P Employees 90-B Conv., L.P., P&P Employees 90-C Conv., L.P., P&P Employees Private 90, L.P., P&P Employees 90 Spraberry Private Development, L.P., P&P Employees 91-A Conv., L.P. and P&P Employees 91-B Conv., L.P. (incorporated by reference to Exhibit 10.53 to Pioneer Parent's Annual Report on Form 10-K, filed with the SEC on February 27, 2001). 23.1* Consent of Vinson & Elkins L.L.P. (included in the opinions filed as Exhibits 5.1 and 8.1 to this Registration Statement). 23.2* Consent of Stradley Ronon Stevens & Young L.L.P. (included in the opinion filed as Exhibit 8.2 to this Registration Statement).
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EXHIBIT NUMBER DESCRIPTION ------- ------------------------------------------------------------ 23.3* Consent of Arter & Hadden LLP (included in the opinion attached to the opinion filed as Exhibit 8.2 to this Registration Statement). 23.4* Consent of Ernst & Young LLP. 23.5* Consent of Williamson Petroleum Consultants, Inc. 24.1# Powers of Attorney of directors and officers of Pioneer Parent. 99.1 Opinion of Robert A. Stanger & Co, Inc. (included as Appendix D to the proxy statement/ prospectus forming a part of this Registration Statement). 99.2* Consent of Robert A. Stanger & Co., Inc. 99.3* Form of Certification of Non-Foreign Status for Individual Partners. 99.4* Form of Certification of Non-Foreign Status for Individual Partners that are Entities. 99.5* Form of Proxy for Special Meeting of Limited Partners of Each of 46 Parker & Parsley Limited Partnerships. 99.6* Form of Letter to Custodians and Consent. 99.7* Agreement dated June 14, 2001, between Pioneer Parent and D.F. King & Co., Inc. 99.8* Form of Letter to Brokers. 99.9* Form of Notice of Multiple Proxies. 99.10* Form of Mailing Envelope. 99.11* Form of Return Envelope. 99.12* Frequently Asked Questions Regarding the Proposed Mergers of Parker & Parsley Limited Partnerships (for use in responding to telephone inquiries only).
--------------- * Filed herewith. # Previously filed. EX-5.1 3 d85998a3ex5-1.txt FORM OF OPINION/CONSENT OF VINSON & ELKINS L.L.P. 1 EXHIBIT 5.1 VINSON & ELKINS L.L.P. Attorneys at Law 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201-2975 Telephone (214) 220-7700 Fax (214) 220-7716 September 20, 2001 Pioneer Natural Resources Company 5205 North O'Connor Blvd., Suite 1400 Irving, Texas 75039 Ladies and Gentlemen: We are acting as counsel for Pioneer Natural Resources Company, a Delaware corporation ("Pioneer Parent"), in connection with the proposed issuance by Pioneer Parent of up to 7,647,323 shares of common stock, par value $.01 per share, together with related rights to purchase shares of Series A Junior Participating Preferred Stock, of Pioneer Parent (the "Shares"). The Shares are proposed to be offered to holders of partnership interests in 46 limited partnerships (each, a "Partnership") in connection with the merger of each Partnership with and into Pioneer Natural Resources USA, Inc., a Delaware corporation and 100% subsidiary of Pioneer Parent ("Pioneer USA"), with Pioneer USA as the surviving corporation, pursuant to an Agreement and Plan of Merger dated as of September 20, 2001 (the "Merger Agreement"), among Pioneer Parent, Pioneer USA and each Partnership. This opinion is being delivered in connection with Pioneer Parent's Registration Statement on Form S-4 (Registration No. 333-59094) (the "Registration Statement") relating to the registration of the offering and sale of the Shares under the Securities Act of 1933. We are rendering this opinion as of the time the Registration Statement becomes effective in accordance with Section 8(a) of the Securities Act of 1933. In connection with this opinion, we have assumed that the Registration Statement will have become effective and the Shares will be issued and sold in compliance with applicable federal and state securities laws and in the manner described in the Registration Statement and the applicable proxy statement/prospectus. Before rendering the opinion hereinafter set forth, we examined, among other things, the Merger Agreement, the Registration Statement, Pioneer Parent's amended and restated certificate of incorporation, Pioneer Parent's amended and restated bylaws, resolutions of Pioneer Parent's board of directors, and originals or photostatic or certified copies of all those corporate records of Pioneer Parent and of all those agreements, communications and other instruments, certificates of public officials, certificates of corporate officials and such other documents as we have deemed relevant and necessary as a basis for the opinion hereinafter set forth. As to factual matters, with respect to information which is in the possession of Pioneer Parent relevant to the opinion herein stated, we have relied without investigation, to the extent we deem such reliance proper, upon certificates or representations made by Pioneer Parent's duly authorized representative. We have assumed that (i) all information contained in all documents reviewed by us is true, complete and correct, (ii) all signatures on all documents reviewed by us are genuine, (iii) all documents submitted to us as originals are true and complete, (iv) all documents submitted to us as copies are true and complete copies of the originals thereof, (v) each natural person signing any document reviewed by us had the legal capacity to do so, and (vi) each natural person signing in a representative capacity any document reviewed by us had authority to sign in such capacity. In addition, we have assumed that (i) the Shares will be issued in accordance with the terms of the Merger Agreement and (ii) certificates evidencing the Shares will be properly executed and delivered in accordance with the General Corporation Law of the State of Delaware. Based on the foregoing and having due regard for the legal considerations we deem relevant, we are of the opinion that the Shares have been validly authorized and, when issued and delivered by Pioneer Parent in accordance with the Merger Agreement, will be validly issued, fully paid and non-assessable. This opinion is limited in all respects to the laws of the States of Delaware and Texas and the federal laws of the United States of America, and we do not express any opinions as to the laws of any other jurisdiction. 2 We hereby consent to the filing of this opinion letter as an exhibit to the Registration Statement and the references to us under the heading "Legal Matters" in the proxy statement/prospectus that forms a part of the Registration Statement. In giving this consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 and the rules and regulations of the Securities and Exchange Commission promulgated thereunder. We express no opinion as to any matter other than as expressly set forth above, and no opinion, other than the opinion given herein, may be inferred or implied herefrom. We undertake no, and hereby disclaim any, obligation to advise Pioneer Parent or anyone else of any change in any matter set forth herein. Very truly yours, /s/ VINSON & ELKINS L.L.P. EX-8.1 4 d85998a3ex8-1.txt FORM OF OPINION/CONSENT OF VINSON & ELKINS L.L.P. 1 EXHIBIT 8.1 VINSON & ELKINS L.L.P. Attorneys at Law 3700 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201-2975 Telephone (214) 220-7700 Fax (214) 220-7716 September 20, 2001 Pioneer Natural Resources Company 5205 North O'Connor Blvd., Suite 1400 Irving, Texas 75039 Ladies and Gentlemen: We participated in the preparation of Registration Statement No. 333-59094 on Form S-4 filed with the Securities and Exchange Commission by Pioneer Natural Resources Company, with respect to the merger of certain limited partnerships with and into Pioneer Natural Resources USA, Inc. (as amended from time to time and together with exhibits thereto, the "Registration Statement"), including the discussion set forth in the Registration Statement under the heading "Material U.S. Federal Income Tax Consequences." The discussion and the legal conclusions with respect to United States federal income tax matters set forth therein constitute our opinion, and we believe they are accurate and complete in all material respects. Our opinion is rendered as of the time the Registration Statement is declared effective and is based and conditioned upon the initial and continuing accuracy of the facts and assumptions set forth in the Registration Statement. Our opinion is also based upon provisions of the United States Internal Revenue Code of 1986, as amended, regulations promulgated or proposed thereunder and interpretations thereof by the Internal Revenue Service and the courts, all as of the date of the Registration Statement, all of which are subject to change with prospective or retroactive effect, and our opinion could be adversely affected or rendered obsolete by any such change. We hereby consent to the use of our name in the Registration Statement and to the filing of this opinion as part of the Registration Statement. This consent does not constitute an admission that we are "experts" within the meaning of such term as used in the United States Securities Act of 1933. Very truly yours, /s/ VINSON & ELKINS L.L.P. EX-23.4 5 d85998a3ex23-4.txt CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.4 CONSENT OF ERNST & YOUNG LLP The Board of Directors and Stockholders Pioneer Natural Resources Company We consent to the reference to our firm under the caption "Independent Auditors and Independent Petroleum Consultants," included in the Proxy Statement/Prospectus of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc. that is made a part of Amendment No. 3 to the Registration Statement of Pioneer Natural Resources Company (Form S-4 filed on September 21, 2001) for the registration of its common stock. We also consent to (1) the incorporation by reference therein of our report dated January 29, 2001, with respect to the consolidated financial statements of Pioneer Natural Resources Company included in its Annual Report (Form 10-K) for the year ended December 31, 2000 filed with the Securities and Exchange Commission and (2) the inclusion of our reports dated March 9, 2001, with respect to the financial statements of the Partnerships listed on pages 4 and 5 of the Proxy Statement/Prospectus, in the Supplemental Information of each partnership to the Proxy Statement/Prospectus. Dallas, Texas September 20, 2001 [/s/ Ernst & Young LLP] Ernst & Young LLP EX-23.5 6 d85998a3ex23-5.txt CONSENT OF WILLIAMSON PETROLEUM CONSULTANTS, INC. 1 EXHIBIT 23.5 CONSENT OF WILLIAMSON PETROLEUM CONSULTANTS, INC. As independent oil and gas consultants, Williamson Petroleum Consultants, Inc. hereby consents to the inclusion of (i) our summary report entitled "Revised Letter Report Including 46 Reports Prepared by Williamson Petroleum Consultants, Inc. for Pioneer Natural Resources USA, Inc. to the Interests of Limited Partners or the Converted Limited Partners in Various Parker & Parsley Partnerships Managed by Pioneer Natural Resources USA, Inc. Effective December 31, 2000, for Disclosure to the Securities and Exchange Commission, Williamson Project 0.8839," dated August 20, 2001, included as Appendix C, and (ii) our summary letter entitled "Summary Letter including 46 Reports of Review of Estimates Prepared by Pioneer Natural Resources USA, Inc. of Oil and Gas Reserves and Associated Future Net Revenue to the Interests of the Limited Partners or the Converted Limited Partners in Various Parker & Parsley Partnerships Managed by Pioneer Natural Resources USA, Inc., Effective March 31, 2001, Williamson Project 1.8859," dated August 17, 2001, included as Appendix B, and to all references to our firm included in or made a part of the Pioneer Natural Resources Company Amendment No. 3 Registration Statement on Form S-4 filed on September 21, 2001. /s/ WILLIAMSON PETROLEUM CONSULTANTS, INC. ------------------------------------------ WILLIAMSON PETROLEUM CONSULTANTS, INC. Midland, Texas September 20, 2001 EX-99.2 7 d85998a3ex99-2.txt CONSENT OF ROBERT A. STANGER & CO, INC. 1 EXHIBIT 99.2 CONSENT OF ROBERT A. STANGER & CO., INC. We hereby consent to the use of our opinion letter dated August 20, 2001, to the board of directors of Pioneer Natural Resources USA, Inc., which is included as Appendix D to the proxy statement/prospectus forming a part of this Registration Statement, and to references to our firm and such opinion letter in such proxy statement/prospectus. In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 and the rules and regulations of the Securities and Exchange Commission promulgated thereunder (the "Securities Act"), and we do not thereby admit that we are experts with respect to any part of this Registration Statement under the meaning of the term "expert" as used in the Securities Act. ROBERT A. STANGER & CO., INC. By: /s/ Kevin T. Gannon ----------------------------- Name: Kevin T. Gannon --------------------------- Title: Managing Director -------------------------- Shrewsbury, New Jersey September 20, 2001 EX-99.3 8 d85998a3ex99-3.txt FORM OF CERTIFICATION OF NON-FOREIGN STATUS 1 EXHIBIT 99.3 CERTIFICATION OF NON-FOREIGN STATUS FOR INDIVIDUAL PARTNERS Section 1446 of the Internal Revenue Code provides that a partnership must pay a withholding tax to the Internal Revenue Service with respect to a partner's allocable share of the partnership's effectively connected taxable income, if the partner is a foreign person. To inform Pioneer Natural Resources USA, Inc., the general partner of the Parker & Parsley limited partnerships, that the provisions of section 1446 do not apply, the undersigned hereby certifies the following: 1. I am not a nonresident alien for purposes of U.S. income taxation; 2. My U.S. taxpayer identification number (social security number) is ________________ ; and 3. My home address is ------------------------ ------------------------ ------------------------ I hereby agree that if I become a nonresident alien, I will notify the partnership within sixty (60) days of doing so. I understand that this certification may be disclosed to the Internal Revenue Service by the partnership and that any false statement I have made here could be punished by fine, imprisonment, or both. Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete. Executed this _____ day of ______________, 2001. (Sign here) ---------------------------------------- Printed Name: --------------------------- IMPORTANT TAX INFORMATION PLEASE COMPLETE THIS CERTIFICATION, OR THE ATTACHED CERTIFICATION OF NON-FOREIGN STATUS FOR PARTNERS THAT ARE ENTITIES, AS APPROPRIATE, TO AVOID FEDERAL INCOME TAX WITHHOLDING UNDER SECTION 1446 OF THE INTERNAL REVENUE CODE ON YOUR LIMITED PARTNERSHIP INCOME AND DISTRIBUTIONS, INCLUDING THE PIONEER PARENT COMMON STOCK TO BE PAID TO YOU UPON THE MERGER OF EACH PARTNERSHIP IN WHICH YOU OWN AN INTEREST. EX-99.4 9 d85998a3ex99-4.txt FORM OF CERTIFICATION OF NON-FOREIGN STATUS 1 EXHIBIT 99.4 CERTIFICATION OF NON-FOREIGN STATUS FOR PARTNERS THAT ARE ENTITIES Section 1446 of the Internal Revenue Code provides that a partnership must pay a withholding tax to the Internal Revenue Service with respect to a partner's allocable share of the partnership's effectively connected taxable income, if the partner is a foreign person. To inform Pioneer Natural Resources USA, Inc., the general partner of the Parker & Parsley limited partnerships, that the provisions of section 1446 do not apply, the undersigned hereby certifies on behalf of _________________________________________________________ ________________________________________________________________________________ (insert name of partner that is an entity) ("Partner") the following: 1. Partner is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations); 2. Partner's U.S. employer identification number is ___________________ ; and 3. Partner's office address is: ------------------------ ------------------------ ------------------------ Partner hereby agrees to notify the partnership within sixty (60) days of the date Partner becomes a foreign person. Partner understands that this certification may be disclosed to the Internal Revenue Service by the partnership and that any false statement contained herein could be punished by fine, imprisonment, or both. Under penalties of perjury I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct, and complete, and I further declare that I have authority to sign this document on behalf of Partner. Executed this _____ day of __________, 2001. By: ---------------------------- Name: -------------------------- Title: ------------------------- IMPORTANT TAX INFORMATION PLEASE COMPLETE THIS CERTIFICATION, OR THE ATTACHED CERTIFICATION OF NON-FOREIGN STATUS FOR PARTNERS THAT ARE INDIVIDUALS, AS APPROPRIATE, TO AVOID FEDERAL INCOME TAX WITHHOLDING UNDER SECTION 1446 OF THE INTERNAL REVENUE CODE ON YOUR LIMITED PARTNERSHIP INCOME AND DISTRIBUTIONS, INCLUDING THE PIONEER PARENT COMMON STOCK TO BE PAID TO YOU UPON THE MERGER OF EACH PARTNERSHIP IN WHICH YOU OWN AN INTEREST. EX-99.5 10 d85998a3ex99-5.txt FORM OF PROXY FOR SPECIAL MEETING OF LTD PARTNERS 1 EXHIBIT 99.5 [LOGO] PROXY CARD PIONEER NATURAL RESOURCES USA, INC. 5205 NORTH O'CONNOR BLVD. SUITE 1400 IRVING, TEXAS 75039 PROXY FOR SPECIAL MEETING OF LIMITED PARTNERS OF EACH OF 46 PARKER & PARSLEY LIMITED PARTNERSHIPS TO BE HELD ON , 2001 THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PIONEER NATURAL RESOURCES USA, INC., AS SOLE OR MANAGING GENERAL PARTNER TO THE 46 PARKER & PARSLEY LIMITED PARTNERSHIPS LISTED IN THE PROXY STATEMENT/PROSPECTUS DATED , 2001. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3 and 4. The undersigned hereby appoints Mark L. Withrow and Timothy L. Dove, and either of them, proxies or proxy with full power of substitution and revocation as to each of them, to represent the undersigned and to act and vote, with all powers which the undersigned would possess if personally present, at the special meetings of limited partners to be held on , 2001 at 10:00 a.m. at the Dallas Marriott Las Colinas Hotel, Irving, Texas 75039, on the following matters and in their discretion on any other matters which may come before the meeting or any adjournments thereof. Receipt of the proxy statement/prospectus dated , 2001 is acknowledged. The table below sets forth the merger value attributable to you as a limited partner for each partnership in which you hold a partnership interest and the estimated number of shares of Pioneer Parent common stock that will be paid to you as a limited partner for the purchase of your partnership interests. The merger value will not be changed. For purposes of illustration in this proxy card, Pioneer USA has calculated the estimated number of shares offered based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. The actual number of shares of Pioneer Parent common stock offered will be calculated by dividing the merger value assigned to a partnership by the average closing price of the Pioneer Parent common stock, as reported by the New York Stock Exchange, for the ten trading days ending three business days before the initial date of the special meeting for the partnership. The estimated number of shares also reflects, and the actual number of shares will reflect, rounding of any fractional shares of Pioneer Parent common stock up to the nearest whole share.
---------------------------------------------------------------------------------------------- MERGER VALUE ATTRIBUTABLE TO YOU ----------------------------------------------------- ESTIMATED NUMBER OF SHARES OF PIONEER PARENT COMMON PARTNERSHIP NAME MERGER VALUE STOCK OFFERED* ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- TOTAL LIMITED PARTNER VALUE ----------------------------------------------------------------------------------------------
* For purposes of illustration in this proxy card, Pioneer USA has calculated the estimated number of shares offered based on an assumed average closing price of $18.00 per share of Pioneer Parent common stock. You may call D.F. King & Co., Inc. after _________ ___, 2001 at 1-800-848-2998, to learn the final number of shares you will receive. FOR FURTHER INFORMATION CONTACT THE INFORMATION AGENT: D.F. KING & CO., INC. Telephone within the U.S. (800) 848-2998 Telephone outside the U.S. (212) 269-5550 (call collect) Facsimile (212) 809-8839 (Continued and to be signed on the other side) Proxy Card - Page 1 2 ITEM 1. Proposal to approve the Agreement and Plan of Merger dated as of September 20, 2001, among Pioneer Natural Resources Company, Pioneer Natural Resources USA, Inc. and each of the partnerships.
---------------------------- ------------------------------------------------------------------------------ PARTNERSHIP NAME VOTE ---------------------------- ------------------------------------------------------------------------------ FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- --------------------------
ITEM 2. Proposal to amend the partnership agreement of each partnership in which the undersigned holds an interest to permit the partnership's merger with and into Pioneer Natural Resources USA, Inc.
---------------------------- ------------------------------------------------------------------------------ PARTNERSHIP NAME VOTE ---------------------------- ------------------------------------------------------------------------------ FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- --------------------------
ITEM 3. Proposal (1) to approve the opinion issued to Pioneer USA by Stradley Ronon Stevens & Young, LLP, of Wilmington, Delaware, relying as to matters of Texas law on the opinion of Arter & Hadden LLP of Dallas, Texas, on behalf of the limited partners that (a) neither the grant nor the exercise of the right to approve the merger of the partnership by its limited partners will adversely affect the federal income tax classification of the partnership or any of its limited partners and (b) neither the grant nor exercise of such right will result in the loss of any limited partner's limited liability and (2) to approve the selection of Stradley Ronon Stevens & Young, LLP, and (as to Texas law matters) Arter & Hadden LLP as special legal counsel for the limited partners to render such legal opinion.
---------------------------- ------------------------------------------------------------------------------ PARTNERSHIP NAME VOTE ---------------------------- ------------------------------------------------------------------------------ FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- --------------------------
ITEM 4. Proposal to allow Pioneer USA to use its discretionary voting authority to postpone or adjourn the special meeting of the limited partners for the purpose of soliciting additional proxies.
---------------------------- ------------------------------------------------------------------------------ PARTNERSHIP NAME VOTE ---------------------------- ------------------------------------------------------------------------------ FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- -------------------------- FOR [ ] AGAINST [ ] ABSTAIN [ ] ---------------------------- ------------------------- ------------------------- --------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PIONEER NATURAL RESOURCES USA, INC., AS SOLE OR MANAGING GENERAL PARTNER TO THE 46 PARKER & PARSLEY LIMITED PARTNERSHIPS LISTED IN THE PROXY STATEMENT/PROSPECTUS DATED , 2001. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1, 2, 3 AND 4. This proxy when properly executed will be voted in the manner directed herein by the undersigned. IN THE ABSENCE OF SUCH DIRECTION, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS SET FORTH ABOVE. You are requested to sign, vote and date below and return this proxy card promptly by mail in the enclosed envelope, telegraph, telex, or facsimile at (212) 809-8839, even if you expect to be present at the special meetings. TO BE VALID, THIS PROXY MUST BE SIGNED. Date: Signature: -------------------------- -------------------------- Signature: -------------------------- (if held jointly) [LIMITED PARTNER NAME] [LIMITED PARTNER ADDRESS] [LIMITED PARTNER ADDRESS] NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. Proxy Card - Page 2 EX-99.6 11 d85998a3ex99-6.txt FORM OF LETTER TO CUSTODIANS AND CONSENT 1 EXHIBIT 99.6 D.F. KING & CO., INC. 77 WATER STREET NEW YORK, NY 10005-4495 (212) 269-5550 RE: MERGER OF 46 PARKER & PARSLEY LIMITED PARTNERSHIPS As described in the proxy statement/prospectus dated , 2001 (the "Prospectus"), of Pioneer Natural Resources Company ("Pioneer Parent") and Pioneer Natural Resources USA, Inc. ("Pioneer USA"), Pioneer Parent and Pioneer USA are proposing to merge (the "Transaction") the 46 limited partnerships named below (the "Partnerships") with and into Pioneer USA. Copies of the Prospectus have been mailed directly to your clients, along with proxy cards for use by your clients in voting their units representing limited partnership interests (the "Units"). TO GIVE EFFECT TO THE VOTES CAST DIRECTLY BY YOUR CLIENTS, YOUR FIRM MUST SIGN AND RETURN THE ACCOMPANYING OMNIBUS CONSENT TO MR. TOM LONG OF D.F. KING & CO., INC. AT 77 WATER STREET, 20TH FLOOR, NEW YORK, NY 10005 OR BY FAX TO (212) 809-8839. ---------- NOTE In the Transaction, your clients are being asked to vote "FOR", "AGAINST" or "ABSTAIN" on their Partnerships' participation in the Transaction. A FAILURE TO SIGN AND RETURN THE ACCOMPANYING OMNIBUS CONSENT MAY INVALIDATE YOUR CLIENTS' VOTES WITH POTENTIALLY ADVERSE CONSEQUENCES FOR YOUR CLIENTS. ACCORDINGLY, YOU ARE URGED TO ACT PROMPTLY. THE VOTING DEADLINE IS P.M., NEW YORK CITY TIME, ON , 2001, UNLESS EXTENDED. TO ASSURE THAT YOUR OMNIBUS CONSENT IS RECEIVED BY US IN TIME FOR FORWARDING TO AND RECEIPT BY THE TABULATION AGENT BEFORE THE VOTING DEADLINE, WE MUST RECEIVE YOUR OMNIBUS CONSENT BY 12:00 NOON, NEW YORK CITY TIME, ON , 2001. ---------- The Partnerships are: Parker & Parsley 81-I, Ltd. Parker & Parsley 88-A Conv., L.P. Parker & Parsley 81-II, Ltd. Parker & Parsley 88-A, L.P. Parker & Parsley 82-I, Ltd. Parker & Parsley 88-B Conv., L.P. Parker & Parsley 82-II, Ltd. Parker & Parsley 88-B, L.P. Parker & Parsley 82-III, Ltd. Parker & Parsley 88-C Conv., L.P. Parker & Parsley 83-A, Ltd. Parker & Parsley 88-C, L.P. Parker & Parsley 83-B, Ltd. Parker & Parsley Producing Properties 88-A, L.P. Parker & Parsley 84-A, Ltd. Parker & Parsley Private Investment 88, L.P. Parker & Parsley 85-A, Ltd. Parker & Parsley 89-A Conv., L.P. Parker & Parsley 85-B, Ltd. Parker & Parsley 89-A, L.P. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley 89-B Conv., L.P. Parker & Parsley Selected 85 Private Investment, Parker & Parsley 89-B, L.P. Ltd. Parker & Parsley 86-A, Ltd. Parker & Parsley Private Investment 89, L.P. Parker & Parsley 86-B, Ltd. Parker & Parsley 90-A Conv., L.P. Parker & Parsley 86-C, Ltd. Parker & Parsley 90-A, L.P. Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 90-B Conv., L.P. Parker & Parsley 87-A Conv., Ltd. Parker & Parsley 90-B, L.P. Parker & Parsley 87-A , Ltd. Parker & Parsley 90-C Conv., L.P. Parker & Parsley 87-B Conv., Ltd. Parker & Parsley 90-C, L.P. Parker & Parsley 87-B, Ltd. Parker & Parsley Private Investment 90, L.P. Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley 90 Spraberry Private Development, L.P. Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley 91-A, L.P. Parker & Parsley Private Investment 87, Ltd. Parker & Parsley 91-B, L.P.
If you need assistance or have any questions, please call Mr. Tom Long of D.F. King & Co., Inc. at (212) 269-5550. Thank you for your prompt attention to this matter. 2 OMNIBUS CONSENT (RE: 46 PARKER & PARSLEY LIMITED PARTNERSHIPS) The undersigned, a registered holder of units representing limited partnership interests (the "Units") in one or more of the partnerships named below (the "Partnerships"), hereby appoints as proxy (individually, a "Proxy") each of the persons, partnerships, associations, corporations and other entities named as beneficiaries in the registrations of the undersigned on the books of the Partnerships on , 2001 (the "Record Date"), with full power of substitution in each, to vote the number of Units of each Partnership held on the books of that Partnership by the undersigned on the Record Date for the benefit of each named Proxy, in the corresponding amount or amounts held by the undersigned on the Record Date for the benefit of each named Proxy, which the undersigned would be entitled to vote by written consent, during the period beginning , 2001 through and including , 2001 or such later date to which the voting deadline for the proposals set forth in the Prospectus (as defined below) may be extended, upon any and all matters which may be properly acted upon by written consent, including all such matters described in the proxy statement/prospectus dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources, USA, Inc., and any amendment or amendments thereto (the "Prospectus"), relating to said action by written consent. The appointment of each Proxy, whether or not coupled with an interest, is revocable, at any time, by a filing by the undersigned with one or more of the Partnerships or their duly authorized agents of an instrument similar to this instrument relating to the Units of the specified Partnership(s), the filing of which instrument or instruments shall revoke the appointments specified herein only to the extent specified in such instrument or instruments. This omnibus consent supersedes and revokes any and all appointments heretofore made by the undersigned with respect to the voting of the Units specified herein. The Partnerships are: Parker & Parsley 81-I, Ltd. Parker & Parsley 88-A Conv., L.P. Parker & Parsley 81-II, Ltd. Parker & Parsley 88-A, L.P. Parker & Parsley 82-I, Ltd. Parker & Parsley 88-B Conv., L.P. Parker & Parsley 82-II, Ltd. Parker & Parsley 88-B, L.P. Parker & Parsley 82-III, Ltd. Parker & Parsley 88-C Conv., L.P. Parker & Parsley 83-A, Ltd. Parker & Parsley 88-C, L.P. Parker & Parsley 83-B, Ltd. Parker & Parsley Producing Properties 88-A, L.P. Parker & Parsley 84-A, Ltd. Parker & Parsley Private Investment 88, L.P. Parker & Parsley 85-A, Ltd. Parker & Parsley 89-A Conv., L.P. Parker & Parsley 85-B, Ltd. Parker & Parsley 89-A, L.P. Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley 89-B Conv., L.P. Parker & Parsley Selected 85 Private Investment, Parker & Parsley 89-B, L.P. Ltd. Parker & Parsley 86-A, Ltd. Parker & Parsley Private Investment 89, L.P. Parker & Parsley 86-B, Ltd. Parker & Parsley 90-A Conv., L.P. Parker & Parsley 86-C, Ltd. Parker & Parsley 90-A, L.P. Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 90-B Conv., L.P. Parker & Parsley 87-A Conv., Ltd. Parker & Parsley 90-B, L.P. Parker & Parsley 87-A , Ltd. Parker & Parsley 90-C Conv., L.P. Parker & Parsley 87-B Conv., Ltd. Parker & Parsley 90-C, L.P. Parker & Parsley 87-B, Ltd. Parker & Parsley Private Investment 90, L.P. Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley 90 Spraberry Private Development, L.P. Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley 91-A, L.P. Parker & Parsley Private Investment 87, Ltd. Parker & Parsley 91-B, L.P.
CUSTODIAN: ------------------------------------ By: --------------------------------- Name: ------------------------------- Title: ------------------------------ Date: ------------------------------- EX-99.7 12 d85998a3ex99-7.txt AGREEMENT DATED JUNE 14, 2001 1 EXHIBIT 99.7 D.F. King & Co., Inc. 77 Water Street, New York, N.Y. 10005 (212) 269-5550 June 14, 2001 Mr. Mark Withrow Executive Vice President , General Counsel Pioneer Natural Resources Company 5205 N. O'Connor Boulevard Suite 1400 Irving TX 75039 Re: Merger of 46 Parker & Parsley Limited Partnerships with Pioneer Natural Resources Company (the "Company") Dear Mark: This letter agreement sets forth the terms and conditions under which D.F. King & Co., Inc. ("King") has been engaged in connection with the special meeting of limited partners scheduled to be determined (the "Meeting"). 1. The Company hereby retains King for proxy solicitation services and tabulation of proxies (the "Services") in connection with the Meeting and requests and authorizes King to contact and to provide information to the Partnership's unitholders with respect to matters to be considered at the Meeting. For the purposes of this agreement, such Services shall not include services in connection with a special meeting for which there is a solicitation in opposition to a resolution. 2. The Company agrees that King shall have the right to pass upon and approve any and all references to King in any materials used by the Company in connection with the Meeting (the "Materials"). 3. King agrees to preserve the confidentiality of all non-public information provided by the Company or its agents for King's use in rendering services hereunder. 4. The Company agrees to pay to King as compensation for the Services a fee of $12,500, plus an additional fee of $4.00 per outgoing and incoming unitholder telephone contact, plus line charges. In addition, there is a fee $.25 per proxy received and tabulated. The fee of $12,500 is payable, pursuant to the following schedule: $ 6,250 Due and payable on the date that the Company's Materials are first sent or mailed to its stockholders; and $ 6,250 Due and payable on the date of the Meeting. ---------- $12,500.00 ========== 2 -2- The Company will promptly reimburse King for all reasonable mailing expenses, costs and disbursements including reasonable counsel fees and expenses (the "Expenses") incurred by King in connection with the Services. King will meet these Expenses from a Reimbursement Account (the "Account") established by the Company pursuant to King's written invoice of estimated expenses. The funds required to establish the Account shall be due and payable not later than the date that the Company's Materials are first sent or mailed to its unitholders. The Account, if depleted, will be replenished by the Company upon King's written request, accompanied by King's interim summary of expenses. As promptly as practicable upon conclusion of this engagement, King will submit its final invoice for Services and return to the Company any unused portion of the Account. The Company agrees and acknowledges that the Company's obligations under this paragraph 4 are fixed and nonrefundable (with the exception of the unused portion, if any, of the Account as set forth above), regardless of future developments in, or the outcome of, the Meeting. If a solicitation in opposition to the Board or in opposition to a resolution proposed by the Board arises during the course of this engagement, and King undertakes to perform additional services therewith, the fee will be modified as mutually agreed. 5. The Company represents and warrants to King that: (a) all necessary corporate or other action will have been duly taken by the Company prior to the commencement of any solicitation to authorize the solicitation; and (b) all material will comply, in all material respects, with the Securities Exchange Act of 1934, as amended and the rules and regulations of the Securities and Exchange Commission thereunder, and all other applicable laws; and, none of the Materials will contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. 6. King hereby represents and warrants to the Company and Pioneer USA, Inc that neither King nor any of its officers or employees who, in connection with the services, may come in contact with the limited partners of the Partnerships is, or has been within the past five (5) years, subject to the following in connection with a violation of a state or federal securities law or regulation: (i) an order denying, suspending or revoking registration of such person as an agent, a cease and desist order, or any similar order, judgement, or decree by any state securities agency, the Securities and Exchange Commission, or any self-regulatory securities organization; or (ii) an order of any court of competent jurisdiction temporarily, preliminarily or permanently enjoining such person. 3 -3- 7. The Company hereby agrees to hold harmless and indemnify King and its officers, directors, employees and agents (collectively the "Indemnified Persons") from and against all losses, claims, damages, liabilities, disbursements and expenses (including, but not limited to, reasonable counsel fees and expenses) incurred by such Indemnified Persons in connection with any claim arising out of, relating to or in connection with the Services, the Meeting and/or the matters relating thereto including the representations and warranties set forth in paragraph 5 above, except for King's gross negligence or willful misconduct. The Company shall reimburse such Indemnified Persons for such counsel fees and expenses when they are paid or incurred by such Indemnified Persons. The foregoing indemnity shall be in addition to any liability which the Company might otherwise have to the Indemnified Persons. 8. King agrees to notify the Company promptly of the assertion of any claim against any of the Indemnified Persons in connection with matters set forth in paragraph 7; and the Company agrees to notify King promptly of the assertion of any claim against the Company. At the Company's election, unless there is a conflict of interest, the defense of Indemnified Persons shall be conducted by the Company's counsel who shall be satisfactory to King. In any action or proceeding the defense of which the Company assumes, an Indemnified Person will have the right to participate in such litigation and to retain its own counsel at such Indemnified Person's own expense. The Company shall not settle or compromise any such action or proceeding without the Indemnified Persons' prior written consent, unless the terms of such settlement or compromise include an unconditional Release of the Indemnified Persons from all liability or loss arising out of such proceeding. 9. The representations and warranties contained in paragraphs 5 and 6 above and the indemnity agreement contained in paragraph 7 and 8 above will survive the term of this agreement. 4 -4- 10. This letter agreement shall be construed and enforced in accordance with the laws of the State of New York, without reference to its conflict of law provisions. The Company agrees that any action, suit or proceeding arising out of or based upon this letter agreement shall be brought in any court of competent jurisdiction located in the County of New York or, at King's option, wherever any claim which is subject to this Agreement is asserted against King or any Indemnified Persons, and the Company hereby consents to personal jurisdiction and venue of such court and to service of process by certified mail, return receipt requested. This agreement shall be binding on the successors and assigns of King and the Company, and may not be modified except in writing signed by the parties hereto. If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof by signing below, whereupon this letter shall constitute a binding agreement between the Company and King. D.F. KING & CO., INC. By: /s/ Thomas A. Long ------------------------------ Thomas A. Long Executive Vice President ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN: PIONEER NATURAL RESOURCES COMPANY By: /s/ Mark L. Withrow ------------------------------------ (Name) Mark L. Withrow Executive Vice President ------------------------ (Title) EX-99.8 13 d85998a3ex99-8.txt FORM OF LETTER TO BROKERS 1 EXHIBIT 99.8 [LOGO] Pioneer USA Natural Resources USA, Inc. 5025 North O'Connor, Suite 1400 Irving, Texas 75039 ___________, 2001 [Broker Name] [Broker Address] Dear [broker name], Pioneer Natural Resources Company ("Pioneer Parent") filed a registration statement with the Securities and Exchange Commission proposing an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and 46 Parker & Parsley limited partnerships. The registration statement became effective _____________, 2001. In anticipation that your clients may look to you for guidance on this proposal, we have enclosed a proxy statement/prospectus for your reference. If you would like to receive the supplements related to a particular partnership, please contact us. Your clients were also mailed the proxy statement/prospectus and related supplements this week. Each partnership that approves the proposals will merge with and into Pioneer USA, and the partnership interests of each partnership will be converted into the right to receive common stock of Pioneer Natural Resources Company (NYSE: PXD) (TSE:PXD). The merger value offered to each of the limited partners has been fixed and is listed on their proxy card. The number of shares of Pioneer common stock that each partner will receive will be based on the average closing price of Pioneer common stock for the ten trading days ending ________, 2001, three business days before the special meeting to be held on __________, 2001. To determine the number of shares of Pioneer common stock the limited partner will receive, the merger value will be divided by the average closing price of the stock on the days defined above. We welcome your questions and ask that you direct them to our investor relations department at 972-969-3584. Sincerely, Scott D. Sheffield President and CEO Pioneer Natural Resources USA, Inc. EX-99.9 14 d85998a3ex99-9.txt FORM OF NOTICE OF MULTIPLE PROXIES 1 EXHIBIT 99.9 IMPORTANT ENCLOSED ARE MULTIPLE PROXIES FOR THE PARKER & PARSLEY LIMITED PARTNERSHIPS THAT YOU CURRENTLY OWN. IN ORDER TO VOTE ALL OF YOUR HOLDINGS, PLEASE SIGN, DATE AND MAIL BACK EACH OF THE PROXIES ENCLOSED IN THE POSTAGE PAID ENVELOPE PROVIDED. ----------------------------- (NAME) ----------------------------- (ADDRESS) ----------------------------- (CITY, STATE) (ZIP) ----------------------------- EX-99.10 15 d85998a3ex99-10.txt FORM OF MAILING ENVELOPE 1 EXHIBIT 99.10 [FORM OF MAILING ENVELOPE] FIRST CLASS U.S. POSTAGE PAID PERMIT NO. 8048 NEW YORK, N.Y. [PIONEER LOGO] FIRST CLASS PIONEER NATURAL RESOURCES C/O D.F. KING & CO., INC. 77 WATER STREET NEW YORK, NEW YORK 10005 IMPORTANT PROXY MATERIAL ENCLOSED RE: SPECIAL MEETINGS OF LIMITED PARTNERS OF PARKER & PARSLEY LIMITED PARTNERSHIPS [ ] EX-99.11 16 d85998a3ex99-11.txt FORM OF RETURN ENVELOPE 1 EXHIBIT 99.11 [Front of Return Envelope] NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES BUSINESS REPLY MAIL FIRST CLASS PERMIT NO. 4453 NEW YORK, N.Y. POSTAGE WILL BE PAID BY ADDRESSEE D.F. KING & CO., INC. WALL STREET STATION P.O. BOX 411 NEW YORK, N.Y. 10269-0069 2 [back of return envelope] Did You Remember To Enclose: 1. The signed Proxy Card(s)? 2. The signed Certification of Non-Foreign Status? EX-99.12 17 d85998a3ex99-12.txt FREQUENTLY ASKED QUESTIONS 1 EXHIBIT 99.12 FREQUENTLY ASKED QUESTIONS REGARDING THE PROPOSED MERGERS OF THE PARKER & PARSLEY LIMITED PARTNERSHIPS (for use in responding to telephone inquiries only) Q1: WHO IS PIONEER NATURAL RESOURCES COMPANY? A: Pioneer is a large independent oil and natural gas exploration and production company with operations in the United States, Canada, Argentina, South Africa, Gabon and Tunisia. Pioneer's headquarters are in Dallas, Texas. Q2: WHEN WAS PIONEER FORMED? A: Pioneer was created on August 7, 1997 through a merger of Parker & Parsley Petroleum Company and MESA Inc. Parker & Parsley was a Midland, Texas oil and gas company whose predecessors began operations in the early 1960's. Parker & Parsley was known for its successful development programs and its growth through acquisitions. MESA Inc. began in Amarillo, Texas and later moved to Irving, Texas. The oil and gas company that was founded by Boone Pickens began operations in 1964. MESA Inc. was known for its premier natural gas properties in the U.S., characterized by long lived reserves and stable, low-cost production. Q3: WHERE ARE PIONEER'S SHARES TRADED? A: Pioneer's common stock trades on the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol "PXD". Q4: HOW CAN I FIND PIONEER'S STOCK QUOTES IN MY LOCAL NEWSPAPER? A: Pioneer trading activity should be listed alphabetically in the New York Stock Exchange listings of your newspaper. Although newspapers differ in the way they abbreviate Pioneer Natural Resources, common abbreviations are "PIONR NAT RES", "PIONEER NATL", and "PION NATL". Q5: DOES PIONEER PAY DIVIDENDS? (SEE PAGE 23 OF THE PROSPECTUS) A: No. Q6: WHY DOESN'T PIONEER PAY DIVIDENDS? A: The last dividend Pioneer made to its shareholders was a five cent per share dividend paid in September 1998. In January 1999 Pioneer's Board of Directors voted to eliminate the $0.05 stock dividend it had previously paid semi-annually, partly because the administrative cost of paying this nominal dividend exceeded $200,000 per year and also because the Company believed the funds would be used better to reduce Company debt and invest in exploration and development activities. 1 2 Q7: CAN I PURCHASE STOCK DIRECTLY THROUGH PIONEER? A: Pioneer does not offer a direct stock purchase plan except to its employees. All stock purchases should be handled through a stock brokerage firm of your choice. Q8: I'M A SMALL SHAREHOLDER. CAN THE COMPANY PURCHASE MY SHARES FROM ME? A: Pioneer does not have a program to allow holders of small numbers of shares (fewer than 100) to sell their shares to the company directly. Holders of 100 or more shares of Pioneer Natural Resources Company stock may sell their shares through any stock brokerage firm. From time to time other institutions have made odd-lot tender offers to our stockholders to acquire holdings of fewer than 100 shares. If a third party were to do one of these after the merger, you would get a notice by mail from that other person. Pioneer does not currently plan to buy back odd-lots itself. Q9: WHO IS PIONEER'S TRANSFER AGENT FOR COMMON STOCK? A: Continental Stock Transfer & Trust Company Toll-free phone: 1-888-509-5586 2 Broadway, 19th Floor 1-212-509-4000 New York, NY 10004 Beginning late November 2001 (Telephone numbers will not change) Continental Stock Transfer & Trust Company Toll-free phone: 1-888-509-5586 17 Battery Place, 8th Floor 1-212-509-4000 New York NY 10004
Q10: I NEED TO CHANGE THE CURRENT REGISTRATION OF MY ACCOUNT DUE TO A DEATH, THE ESTABLISHMENT OF A TRUST, A CHANGE OF IRA/KEOGH CUSTODIAN, A RECENT MARRIAGE OR DIVORCE, ETC. A: If the plan of merger is approved, and after receipt of stock certificates issued as ownership is currently registered, contact the stock transfer agent for common stock, Continental Stock Transfer & Trust Company, 2 Broadway, 19th Floor, New York, NY 10004. Toll-free phone: 1-888-509-5586. After the vote is tallied and if the merger is not approved, contact the limited partnership transfer agent in writing: Parker & Parsley Limited Partnerships Transfer Agent, P.O. Box 3178, Midland, TX 79702-3178. Q11: I OWN UNITS IN PARKER & PARSLEY LIMITED PARTNERSHIP XXX. IS THIS LIMITED PARTNERSHIP INCLUDED IN THE PROPOSED MERGER? (SEE PAGES 77-78 OF THE PROSPECTUS) A: Yes. All of the Parker & Parsley Limited Partnerships are included. 2 3 Q12: WHAT ARE THE TAX CONSEQUENCES OF THE PARKER & PARSLEY LIMITED PARTNERSHIP MERGER? (SEE PAGES 8-9 OF THE SUMMARY IN THE PROSPECTUS AND PAGES 54-57 OF THE PROSPECTUS) A: The merger will be a taxable transaction. You will generally recognize gain or loss equal to the difference between (1) the value of the Pioneer Natural Resources Company stock you receive in the merger and (2) your adjusted tax basis in the partnership interests. Your gain or loss will be capital or ordinary depending on the nature of the assets held in the partnership and the amount of depletion and intangible drilling and development costs that must be recaptured. Tax matters are complicated, and we suggest you consult a tax advisor to determine the tax consequences to you. The merger will eliminate the limited partners' schedule K-1 tax reports for years after 2001, which should simplify your tax return preparation and reduce preparation costs. Q13: WHAT SHOULD I USE AS MY TAX/COST BASIS? (SEE PAGES 54-57 OF THE PROSPECTUS) A: We suggest you read pages 54-57 of the prospectus and consult your own tax advisor, since this basis may differ from person to person. Q14: WHAT DOES "UNAFFILIATED PARTNER" MEAN? A: It means a limited partner who is not Pioneer USA, its officers, directors, or parent company, Pioneer Natural Resources Company. Q15: HOW CAN I FIND THE VALUE OF MY LIMITED PARTNERSHIP AND/OR NUMBER OF PIONEER SHARES I WOULD RECEIVE IN THE MERGER? (SEE PAGES 4-5 OF THE PROSPECTUS) A: Merger values are listed on pages 4 and 5 of the prospectus and on page 2 of the supplement for your partnership. The chart of merger values also includes an estimated number of shares* to be issued based on each $1,000 investment, based on an $18.00 per share price. The tables in Appendix A also provide details about some of the components of the merger value. (See pages 49-52 of prospectus for more detail about how the merger value was determined.) * The stock price used in the calculation will be the average closing price of PXD as reported by the New York Stock Exchange for the ten trading days ending three business days before the date of the special meeting. Prior to the date of the special meeting for each partnership, we will update the number of shares to be issued using the actual closing price of Pioneer common stock for the ten trading days ending three business days before the initial date of the special meeting. You may call D.F. King & Co., Inc. after (date) at (800) 848-2998 to learn the final number of shares you will receive if your partnership approves the merger. Q16: HOW CAN I CALCULATE THE NUMBER OF SHARES TO BE RECEIVED IN EXCHANGE FOR MY LIMITED PARTNERSHIP UNITS? (SEE PAGE 6 OF THE PROSPECTUS.) A: Page 6 of the prospectus gives an example of the calculation. Basically, you divide the merger value per $1,000 initial limited partner investment by the share price. Remember that the number of shares to be issued will be based on a price equal to the average closing price of the common stock for the ten trading days that end three business days before the special meetings. 3 4 Q17: WHAT HAPPENS IF I DON'T VOTE? (SEE PAGES v AND 66-67 OF THE PROSPECTUS.) A: If there is no response from an investor, it is considered a "NO" vote. If an investor returns a signed but not voted card, it is considered a "YES" vote. A signed proxy card marked "ABSTAIN" is counted as present for purposes of establishing a quorum, but it will not be voted, so it will have the same effect as a vote against the merger. Q18: I OWE MONEY TO PIONEER ON A NOTE ON A PARKER & PARSLEY LIMITED PARTNERSHIP PRIVATE FUND. HOW DOES THIS AFFECT MY MERGER VALUE? (SEE PAGES 10 AND 57 OF THE PROSPECTUS) A: Pioneer will apply the common stock that would have otherwise been issued to the limited partner in the merger to reduce the indebtedness by the investor. If the indebtedness is less than the investor's merger value, the limited partner will receive Pioneer Natural Resources Company common stock for the remaining value after payment of indebtedness. If the limited partner's indebtedness to Pioneer USA is greater than their merger value, Pioneer USA may collect the deficiency from the limited partner. Q19: WHY IS THE MERGER A GOOD DEAL FOR ME? (SEE PAGES 7-8, 34-37, 75-76 OF THE PROSPECTUS.) A Liquidity; provides an oil and gas investment vehicle; merger value equal to or greater than liquidation value; provides acceleration of realization of value; eliminates partnership tax reports; tax incentives have been realized. Q20: WHAT ARE THE DISADVANTAGES FOR ME IF THE MERGER OCCURS? (SEE PAGES 8 AND 20-26 OF THE PROSPECTUS.) A Owning common stock in a corporation is a fundamental change in the nature of the investment; there are market risks attendant to an investment in a public company; you will have to sell stock if you want to receive cash since the company does not plan to pay dividends; tax considerations; and others. Q21: WHAT IS THE REASON FOR THE CERTIFICATION OF NON-FOREIGN STATUS? (SEE PAGE 9 OF THE PROSPECTUS.) A: We are required by law to withhold federal income taxes from the common stock of Pioneer Natural Resources Company that you will receive in the merger, unless you certify to us that you are a U.S. person as defined in the Certification of Non-Foreign Status. Your certificate must include your taxpayer ID number and address and be properly signed. You will be able to credit any amounts we withhold against your U.S. federal income tax liability. If you do not otherwise file reports and pay U.S. federal income taxes, you will not be able to recover the withheld amounts. Q22: WILL I RECEIVE A SEPARATE STOCK CERTIFICATE FOR EACH LIMITED PARTNERSHIP THAT I OWN? A No, you will receive one certificate reflecting the number of shares due from all of your partnerships. 4 5 Q23: HOW SHOULD THE PROXY CARD BE SIGNED IF a) THERE IS JOINT OWNERSHIP (both owners should sign) b) THE OWNER IS DECEASED (executor/administrator, etc. should sign) c) MY NAME HAS CHANGED (sign with name printed on proxy card.) Q24: HOW WILL I KNOW THE OUTCOME OF THE VOTE? A There will be a news release issued announcing the partnerships that voted to merge. If you receive a check for cash distributions after the meeting date, you will know that your partnership did not approve the merger. If you receive stock, you will know that it did approve the merger. Q25: WHERE DO I SEND MY LIMITED PARTNERSHIP CERTIFICATES FOR EXCHANGE? (SEE PAGE VI OF THE PROSPECTUS.) A If a merger is completed, your certificates in that partnership will be cancelled without further action by you. You will be mailed a certificate of Pioneer common stock issued in your name. Q26: WHO CAN I CONTACT IF I HAVE ADDITIONAL QUESTIONS OR IF I WANT MORE INFORMATION ON PIONEER, SUCH AS ANNUAL REPORT, COPIES OF FORMS 10-K OR 10-Q? A Contact Pioneer's Investor Relations department at (972) 969-3584 or (972) 969-3583. Please also see "Where You Can Find More Information" on pages beginning on the inside front cover of the prospectus. 5