-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WClBzeetOi0GXRD2gx/SWAF4+llkfJbSu91x96tJRMwYP4uinr5o7hCQL7KNcRMl 28+vB6C+LzcAHpWKf8/glw== 0000319019-00-000005.txt : 20000308 0000319019-00-000005.hdr.sgml : 20000308 ACCESSION NUMBER: 0000319019-00-000005 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAY LIMITED PARTNERSHIP 1984-2 CENTRAL INDEX KEY: 0000757385 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 751985008 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 002-80992-06 FILM NUMBER: 562330 BUSINESS ADDRESS: STREET 1: 4582 S ULSTER ST PKWY STE 1700 CITY: DENVER STATE: CO ZIP: 80237 BUSINESS PHONE: 3038507373 10-K405 1 MAY LIMITED PARTNERSHIP 1984-2 12/31/99 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K MARK ONE [x] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-89194 MAY DRILLING PARTNERSHIP 1984-2 MAY LIMITED PARTNERSHIP 1984-2 (Exact name of registrant as specified in its charter) 75-1985009 Texas 75-1985008 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 4610 South Ulster Street Parkway Suite 200 Denver, Colorado 80237 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 850-7373 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- ---------------------- None None Securities Registered Pursuant to Section 12(g) of the Act: Units of Participation, $1,000 Per Unit (Title of Class) 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] DOCUMENTS INCORPORATED BY REFERENCE: Part of Form 10-K into Document which it is incorporated The General Partnership Agreement and the Limited Partnership Agreement filed as an Exhibit to Registration Statement No. 0-89194 Part IV PART I ITEM 1 - BUSINESS May Drilling Partnership 1984-2 (the "Drilling or General Partnership") and May Limited Partnership 1984-2 (the "Limited Partnership") were organized by May Petroleum Inc. ("May") to explore for and develop oil and gas reserves primarily in Texas, Oklahoma and Louisiana. Funds received from the sale and production of oil and gas reserves are used to pay the obligations of the Limited Partnership. Funds not required by the Limited Partnership as working capital are distributed to the participants in the Drilling Partnership and the general partner. The general partner of the Limited Partnership is Hallwood Energy Partners, L.P., which is a subsidiary of Hallwood Energy Corporation ("HEC"). The Drilling Partnership is the sole limited partner of the Limited Partnership. The Limited Partnership does not have any subsidiaries, nor does it engage in any other kind of business. The Limited Partnership has no employees and is operated by Hallwood Petroleum, Inc. ("HPI"), a subsidiary of HEC. In February 2000, HPI employed 100 full-time employees. Pursuant to the terms of the general partnership agreement and the limited partnership agreement, HEC is obligated, from time to time, to contribute certain amounts, in property, cash or unreimbursed services, to the Limited Partnership. As of December 31, 1999, all such required contributions had been accrued. The partnership agreements governing the Drilling Partnership and the Limited Partnership provide for a fifteen-year term of existence. As a result, the term of the Drilling Partnership and the Limited Partnership ended on September 18, 1999. Over the first four months of 2000, the general partner will proceed to wind-up the Drilling Partnership and the Limited Partnership. This process includes preparing a final accounting, paying the liabilities of the Drilling Partnership and the Limited Partnership, and making a liquidating distribution in accordance with the capital accounts of the partners. The general partner believes that it would be in the best interest of the limited partners to sell the assets of the Limited Partnership and distribute any cash remaining after payment of liabilities. The distribution of a pro rata direct working interest in the Freddie Aker #1 well to each of the partners would not be practicable because of the large number of partners involved (over 700), the small size of the resulting interests and, in general, the risks and inconvenience that can be associated with being a small working interest owner. The general partner intends to sell the investors' interest in the Freddie Aker #1 well at a public auction in the first quarter of 2000. Participation in Expenses and Revenues The principal expenses and revenues of the Limited Partnership are shared by the general partner and the Drilling Partnership as set forth in the following table. The charges and credits to participants in the Drilling Partnership are shared among the participants in proportion to their ownership of units of participation. Drilling General Partnership Partner Abandonment expenses (1) 99% 1% Noncapital expenses 99% 1% Direct expenses 99% 1% Lease acquisition expenses 100% Capital expenses 100% Oil and gas revenues (2) (2) Operating expenses (2) (2) Special projects (2) (2) General and administrative overhead (2) (2) (1) Includes expenses that would otherwise be allocated as lease acquisition expenses and/or capital expenses but that relate to abandoned properties. (2) Such items were shared 70% by the Drilling Partnership and 30% by the general partner until December 31, 1984. As of December 31, 1984, and as of December 31 of each year thereafter, the sharing of such items is adjusted so the general partner's allocation equals the percentage that the amount of Limited Partnership expenses allocated to the general partner bears to the aggregate amount of Limited Partnership expenses allocated to the general partner and the Drilling Partnership, plus 15 percentage points, but in no event will the general partner's allocation exceed 50%. The sharing ratio for each of the last three years was: 1999 1998 1997 ---- ---- ---- Limited Partner 68.0% 68.1% 68.2% General Partner 32.0% 31.9% 31.8% In 2000, the sharing ratio will be 68.0% to the limited partner and 32.0% to the general partner. To the extent that the characterization of any expense to the Limited Partnership depends on its deductibility for federal income tax purposes, the proper characterization is determined by the general partner (according to its intended characterization on the Limited Partnership's federal income tax return) in good faith at the time the expense is to be charged or credited. Such characterization will control related charges and credits to the partners regardless of any subsequent determination by the Internal Revenue Service or a court of law that the reported expenses should be otherwise characterized for tax purposes. Competition Oil and gas must compete with coal, atomic energy, hydro-electric power and other forms of energy. See also "Marketing" for a discussion of the market structure for oil and gas sales. Regulation Production and sale of oil and gas is subject to federal and state governmental regulations in a variety of ways including environmental regulations, labor law, interstate sales, excise taxes and federal, state and Indian lands royalty payments. Failure to comply with these regulations may result in fines, cancellation of licenses to do business and cancellation of federal, state or Indian leases. The production of oil and gas is subject to regulation by the state regulatory agencies in the states in which the Limited Partnership does business. These agencies make and enforce regulations to prevent waste of oil and gas and to protect the rights of owners to produce oil and gas from a common reservoir. The regulatory agencies regulate the amount of oil and gas produced by assigning allowable production rates to wells capable of producing oil and gas. Federal Income Tax Considerations The Limited Partnership and the General Partnership are partnerships for federal income tax purposes. Consequently, they are not taxable entities; rather, all income, gains, losses, deductions and credits are passed through and taken into account by the partners on their individual federal income tax returns. In general, distributions are not subject to tax so long as such distributions do not exceed the partner's adjusted tax basis. Any distributions in excess of the partner's adjusted tax basis are taxed generally as capital gains. Marketing The oil and gas produced from the properties owned by the Limited Partnership has typically been marketed through normal channels for such products. Oil has generally been sold to purchasers at field prices posted by the principal purchasers of crude oil in the areas where the producing properties are located. The majority of the Limited Partnership's gas production is sold on the spot market and is transported in intrastate and interstate pipelines. Both oil and natural gas are purchased by refineries, major oil companies, public utilities and other users and processors of petroleum products. Factors which, if they were to occur, might adversely affect the Limited Partnership include decreases in oil and gas prices, the availability of a market for production, rising operational costs of producing oil and gas, compliance with and changes in environmental control statutes, and increasing costs and difficulties of transportation. Significant Customers For the years ended December 31, 1999, 1998 and 1997, purchases by the following companies exceeded 10% of the total oil and gas revenues of the Limited Partnership: 1999 1998 1997 ---- ---- ---- Conoco Inc. 68% 48% 41% Plains All American Inc. 31% Marathon Petroleum Company 16% 39% TXG Gas Marketing 17% 19% Scurlock Permian LLC 17% Although the Limited Partnership sells the majority of its production to a small number of purchasers, there are numerous other purchasers in the area, so the loss of any significant customer would not adversely affect the Limited Partnership's operations. Environmental Considerations The exploration for, and development of, oil and gas involve the extraction, production and transportation of materials which, under certain conditions, can be hazardous or can cause environmental pollution problems. In light of the present general interest in environmental problems, the general partner cannot predict what effect possible future public or private action may have on the business of the Limited Partnership. The Limited Partnership's historical environmental expenditures have not been material and are not expected to be material in the future. The general partner is continually taking all actions it believes necessary in its operations to ensure conformity with applicable federal, state and local environmental regulations and does not presently anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect upon capital expenditures, earnings or the competitive position of the Limited Partnership in the oil and gas industry. Insurance Coverage The Limited Partnership is subject to all the risks inherent in the exploration for, and development of, oil and gas, including blowouts, fires and other casualties. The Limited Partnership maintains insurance coverage as is customary for entities of a similar size engaged in operations similar to the Limited Partnership's, but losses can occur from uninsurable risks or in amounts in excess of existing insurance coverage. The occurrence of an event which is not insured or not fully insured could have an adverse impact upon the Limited Partnership's earnings and financial position. Cautionary Statement Regarding Forward-Looking Statements In the interest of providing the partners with certain information regarding the Limited Partnership's future plans and operations, certain statements set forth in this Form 10-K relate to management's future plans and objectives. Such statements are forward-looking statements. Although any forward-looking statements contained in this Form 10-K or otherwise expressed by or on behalf of the Limited Partnership are, to the knowledge and in the judgment of the officers and directors of the general partner, expected to prove true and come to pass, management is not able to predict the future with absolute certainty. Forward-looking statements involve known and unknown risks and uncertainties which may cause the Limited Partnership's actual performance and financial results in future periods to differ materially from any projection, estimate or forecasted result. These risks and uncertainties include, among other things, volatility of oil and gas prices, competition, risks inherent in the Limited Partnership's oil and gas operations, the inexact nature of interpretation of seismic and other geological and geophysical data, imprecision of reserve estimates, the Limited Partnership's ability to replace and expand oil and gas reserves, and such other risks and uncertainties described from time to time in the Limited Partnership's periodic reports and filings with the Securities and Exchange Commission. Accordingly, partners are cautioned that certain events or circumstances could cause actual results to differ materially from those projected, estimated or predicted. ITEM 2 - PROPERTIES The Limited Partnership's oil and gas reserves are located on properties in south Louisiana. Natural gas accounts for 55% of estimated future gross revenues in the Limited Partnership's reserve report as of December 31, 1999. Significant Properties At December 31, 1999, the following prospect accounted for all of the Limited Partnership's proved oil and gas reserves. Reserve quantities were obtained from the December 31, 1999 reserve report prepared by HPI's petroleum engineers. Meaux Prospect. The Meaux prospect is located in Lafayette Parish, Louisiana. The Limited Partnership's interest in the prospect contains one productive well (the Freddie Aker) and has estimated remaining net proved reserves of 7,000 bbls of oil and 79,000 mcf of gas as of December 31, 1999. The Limited Partnership's working interest in this well is 13.1%. The prospect produces from one zone, the Bol Mex.3 formation, at 15,275 feet. As part of the liquidation process, the general partner intends to sell the investors' interest in the Freddie Aker #1 well at public auction during the first quarter of 2000. ITEM 3 - LEGAL PROCEEDINGS None. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS No matter was submitted to a vote of participants during the fourth quarter of 1999. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS a) The registrant's securities consist of partnership interests which are not traded on any exchange and for which no established public trading market exists. b) As of December 31, 1999, there were approximately 746 holders of record of partnership interests in the Drilling Partnership. c) Distributions paid by the Limited Partnership were as follows(in thousands): General Limited Partner Partner 1999 $107 $191 1998 289 546 1997 436 865 ITEM 6 - SELECTED FINANCIAL DATA
For the Limited Partnership As of or for the Year Ended December 31, ---------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- (In thousands) Total revenues $309 $586 $1,311 $2,010 $1,170 Oil and gas revenues 304 574 1,287 1,996 1,156 Net income 179 451 1,098 1,796 988 Working capital 166 271 605 806 580 Total assets 321 362 652 818 597 Partners' capital -- -- 638 806 580 Net assets in liquidation 166 271 -- -- --
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The terms of the partnership agreements governing the General Partnership and the Limited Partnership provide for a fifteen year term of existence which extended through September 18, 1999. The partnerships are expected to be liquidated prior to the end of the second quarter of 2000. As a result, the General Partnership and the Limited Partnership changed their basis of accounting from the going concern basis to the liquidation basis effective December 31, 1998. Accordingly, assets have been valued at estimated realizable value, net of estimated disposition costs, and liabilities have been adjusted to estimated settlement amounts, as follows (in thousands): December 31, 1999 1998 ---- ---- Appreciation of oil and gas properties $ 76 $ 77 Deferral of appreciated gain on oil and gas properties (76) (77) Liquidity and Capital Resources Material changes in the Limited Partnership's cash position for the years ended December 31, 1999 and 1998 are summarized as follows: 1999 1998 ---- ---- (In thousands) Cash provided by operating activities $ 305 $ 676 Distributions to partners (298) (835) Contributions from partners 17 35 Additions to oil and gas properties (94) ---- ----- Decrease in cash $ (70) $(124) ==== ==== Cash provided by operating activities in 1999 was used primarily for distributions to the partners and for capital expenditures. The reserves of the Limited Partnership have been estimated by HPI's in-house engineers and have been reviewed by independent petroleum engineers. Proved reserves and discounted future net revenues valued at year-end prices (discounted at 10% and before general and administrative expenses) from proved reserves were estimated at 7,000 bbls and 79,000 mcf valued at $299,000 in 1999 and 10,000 bbls and 105,000 mcf valued at $293,000 in 1998. The increase in discounted future net revenues and in the quantities resulted from an increase in year-end oil and gas prices, partially offset by current year production and decreases in the estimated rates of future production on the Freddie Aker well as it is nearing the end of its productive life. Estimates of discounted future net revenues should not be construed as the current market value of the estimated oil and gas reserves. In accordance with requirements of the Securities and Exchange Commission, the estimated discounted future net revenues from proved reserves are generally based on prices and costs as of the date of the estimate, whereas actual future prices and costs may be materially higher or lower. In addition, the 10% discount factor, which is required by the SEC for reporting purposes, is not necessarily the most appropriate discount factor based on risks associated with the production of the reserves or the oil and gas industry in general. Accordingly, the price received from the sale of oil and gas reserves is not generally the same as the estimated future net revenues for those reserves and the amount received in liquidation of the assets. Results of Operations 1999 Compared to 1998 Gas Revenue Gas revenue decreased $195,000 during 1999 compared with 1998. The decrease is due to a 53% decrease in production partially offset by an increase in the average gas price from $2.50 per mcf during 1998 to $2.64 per mcf during 1999. The decrease in production from 154,502 mcf in 1998 to 72,618 mcf in 1999 is due to the shut-in of the Freddie Aker #1 well during October 1999 while workover procedures were performed and increased rates of water production on the well. Oil Revenue Oil revenue decreased $75,000 during 1999 compared with 1998. The decrease is comprised of a 52% decrease in production, partially offset by an increase in the average price from $12.99 per barrel in 1998 to $16.34 per barrel in 1999. The decrease in production from 14,367 barrels in 1998 to 6,833 barrels in 1999 is due to the shut-in of the Freddie Aker #1 well during October 1999 while workover procedures were performed and increased rates of water production on the well. Interest Income Interest income decreased $7,000 during 1999 compared with 1998 due to a lower average cash balance during 1999. Lease Operating Lease operating expense decreased $6,000 during 1999 compared with 1998 primarily due to decreased maintenance activity during 1999. Production Taxes Production taxes decreased $18,000 during 1999 compared with 1998 as a result of a decreased oil and gas production during 1999. General and Administrative General and administrative expenses decreased $4,000 during 1999 compared with 1998 primarily due to a decrease in performance based compensation expense. Depletion Depletion expense increased $21,000 during 1999 compared with 1998 primarily due to an increase in capitalized costs during 1999 resulting from workover procedures performed on the Freddie Aker #1 well. Professional Services and Other Professional services and other expense increased $2,000 during 1999 compared to 1998 due to an increase in numerous miscellaneous items, none of which is individually significant. 1998 Compared to 1997 Gas Revenue Gas revenue decreased $406,000 during 1998 compared with 1997. The decrease is due to a decrease in the average gas price from $3.07 per mcf during 1997 to $2.50 per mcf during 1998, combined with a 40% decrease in production. The decrease in production from 258,483 mcf in 1997 to 154,502 mcf in 1998 is due to increased rates of water production on the Freddie Aker #1 well in Louisiana. Oil Revenue Oil revenue decreased $307,000 during 1998 compared with 1997. The decrease is comprised of a 41% decrease in production, combined with a decrease in the average price from $20.28 per barrel in 1997 to $12.99 per barrel in 1998. The decrease in production from 24,353 barrels in 1997 to 14,367 barrels in 1998 is due to due to increased rates of water production on the Freddie Aker #1 well in Louisiana. Interest Income Interest income decreased $3,000 during 1998 compared with 1997 due to a lower average cash balance during 1998. Other Other income during 1997 is comprised of insurance proceeds which reimbursed a portion of expense incurred in a prior period to settle certain litigation. Lease Operating Lease operating expense decreased $12,000 during 1998 compared with 1997 primarily due to decreased maintenance activity during 1998. Production Taxes Production taxes decreased $46,000 during 1998 compared with 1997 as a result of a decreased oil and gas production during 1998. General and Administrative General and administrative expenses increased $1,000 during 1998 compared with 1997 primarily due to an increase in performance based compensation expense. Depletion Depletion expense decreased $22,000 during 1998 compared with 1997 due to a lower depletion rate caused by a decrease in production and a decrease in capitalized costs during 1998. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Limited Partnership's primary market risk relates to changes in the prices received from sales of oil and natural gas production. The Limited Partnership manages its commodity price risks by using well-trained and experienced marketing personnel to sell its production. The Limited Partnership does not use any financial instruments or derivative commodity instruments that are subject to price or interest rate risk.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Page FINANCIAL STATEMENTS: Independent Auditors' Report 13 Statements of Net Assets in Liquidation at December 31, 1999 and 1998 - May Drilling Partnership 1984-2 14 Statements of Net Assets in Liquidation at December 31, 1999 and 1998 - May Limited Partnership 1984-2 15 Statement of Changes in Net Assets in Liquidation for the Year Ended December 31, 1999 and Statements of Operations for the Years Ended December 31, 1998 and 1997 - May Limited Partnership 1984-2 16 Statements of Changes in Partners' Capital for the Years Ended December 31, 1998 and 1997 - May Limited Partnership 1984-2 17 Statements of Cash Flows for the Years Ended December 31, 1998 and 1997 - May Limited Partnership 1984-2 18 Notes to Financial Statements - May Drilling Partnership 1984-2 and May Limited Partnership 1984-2 19-23 SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) 24
INDEPENDENT AUDITORS' REPORT To the Partners of May Drilling Partnership 1984-2 and May Limited Partnership 1984-2: We have audited the accompanying financial statements of May Drilling Partnership 1984-2 ("General Partnership") and May Limited Partnership 1984-2 ("Limited Partnership") listed in the accompanying index at Item 8. These financial statements are the responsibility of the Partnerships' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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. As discussed in Note 1 to the financial statements, the terms of the partnership agreements governing the General Partnership and the Limited Partnership provide for a fifteen year term of existence which extended through September 18, 1999. The partnerships are expected to be liquidated in 2000. As a result, the General Partnership and the Limited Partnership have changed their basis of accounting from the going concern basis to the liquidation basis effective December 31, 1998. In our opinion, such financial statements present fairly, in all material respects, (1) the net assets in liquidation of the General Partnership and the Limited Partnership as of December 31, 1999 and 1998, (2) the changes in net assets in liquidation of the Limited Partnership for the year ended December 31, 1999 and (3) the results of operations and cash flows of the Limited Partnership for the years ended December 31, 1998 and 1997 in conformity with generally accepted accounting principles on the bases described in the preceding paragraph. DELOITTE & TOUCHE LLP Denver, Colorado March 6, 2000
MAY DRILLING PARTNERSHIP 1984-2 STATEMENTS OF NET ASSETS IN LIQUIDATION AT DECEMBER 31, 1999 AND 1998 (In thousands) 1999 1998 -------------- --------- ASSETS Investment in May Limited Partnership 1984-2 $ - $77 ==== == NET ASSETS IN LIQUIDATION $ - $77 ==== == Note: The statements of operations, changes in net assets in liquidation, changes in partners' capital and cash flows for May Drilling Partnership 1984-2 are not presented because such information is equal to the Limited Partners' share of such activity as presented in the May Limited Partnership 1984-2 financial statements. The May Drilling Partnership carries its investment in May Limited Partnership 1984-2 on the equity method. The May Limited Partnership 1984-2 financial statements should be read in conjunction with this statement of net assets in liquidation. The May Limited Partnership 1984-2 changed its basis of accounting from the going concern basis to the liquidation basis effective December 31, 1998 as described in Note 1 to the financial statements. The accompanying notes are an integral part of the financial statements.
MAY LIMITED PARTNERSHIP 1984-2 STATEMENTS OF NET ASSETS IN LIQUIDATION AT DECEMBER 31, 1999 AND 1998 (In thousands) 1999 1998 -------------- --------- ASSETS Cash and cash equivalents $ 92 $ 162 Accrued oil and gas revenues 71 61 Due from affiliate 30 Contribution receivable from general partner 14 17 OIL AND GAS PROPERTIES: At estimated net realizable value 144 92 ------- -------- TOTAL ASSETS 321 362 ------- ------- LIABILITIES Accounts payable and accrued liabilities 16 14 Due to affiliate 63 Deferred appreciated gain on oil and gas properties 76 77 -------- -------- NET ASSETS IN LIQUIDATION $ 166 $ 271 ======= ======= The accompanying notes are an integral part of the financial statements.
MAY LIMITED PARTNERSHIP 1984-2 STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE YEAR ENDED DECEMBER 31, 1999 AND STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (In thousands, except for Unit and per Unit Information) 1999 1998 1997 ---- ---- ---- REVENUES Gas revenue $ 192 $ 387 $ 793 Oil revenue 112 187 494 Interest income 5 12 15 Other 9 ---------- ---------- ---------- Total 309 586 1,311 ------ ------ ------ COSTS AND EXPENSES Lease operating 27 33 45 Production taxes 22 40 86 General and administrative 29 33 32 Depletion 39 18 40 Professional services and other 13 11 10 -------- -------- -------- Total 130 135 213 ------- ------- ------- NET INCOME FROM OPERATIONS 179 $ 451 $ 1,098 ======= ====== NET ASSETS IN LIQUIDATION, BEGINNING OF PERIOD 271 DISTRIBUTIONS TO PARTNERS (298) CONTRIBUTIONS FROM PARTNERS 14 -------- NET ASSETS IN LIQUIDATION, END OF PERIOD $ 166 ======= ALLOCATION OF NET INCOME: General Partner $ 148 $ 358 ======= ======= Limited Partner $ 303 $ 740 ======= ======= Per initial $1,000 Limited Partner investment $ 35.10 $ 85.71 ====== ====== Weighted average initial $1,000 Limited Partner investment units outstanding 8,633 8,633 ====== ====== The accompanying notes are an integral part of the financial statements.
MAY LIMITED PARTNERSHIP 1984-2 STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (In thousands) Net Assets General Limited in Partner Partner Liquidation Total BALANCE, December 31, 1996 $ 361 $ 445 $ 806 Capital contributions 35 35 Net income 358 740 1,098 Distributions (436) (865) (1,301) ------ ------ ------ BALANCE, December 31, 1997 318 320 638 Capital contributions 17 17 Net income 148 303 451 Distributions (289) (546) (835) Adjustments to liquidation basis: Eliminate Partners' Capital (194) (77) (271) Revaluation of assets and liabilities $ 271 271 --------- --------- ------ -------- BALANCE, December 31, 1998 $ -0- $ -0- $ 271 $ 271 ======= ======= ====== ======== The accompanying notes are an integral part of the financial statements.
MAY LIMITED PARTNERSHIP 1984-2 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 (In thousands) 1998 1997 ---- ---- OPERATING ACTIVITIES: Net income $ 451 $ 1,098 Adjustment to reconcile net income to net cash provided by operating activities: Depletion 18 40 Changes in assets and liabilities provided (used) cash: Accrued oil and gas revenues 131 128 Due from affiliate 76 8 Accounts payable and accrued liabilities 2 ---------- --------- Net cash provided by operating activities 676 1,276 ------ ------ INVESTING ACTIVITIES - Additions to gas and oil properties (73) ---------- ------- FINANCING ACTIVITIES - Distributions to partners (835) (1,301) Contributions from partners 35 32 -------- -------- Net cash used in financing activities (800) (1,269) ------- ------ NET DECREASE IN CASH AND CASH EQUIVALENTS (124) (66) CASH AND CASH EQUIVALENTS: BEGINNING OF YEAR 286 352 ------ ------ END OF YEAR $ 162 $ 286 ====== ====== The accompanying notes are an integral part of the financial statements.
MAY DRILLING PARTNERSHIP 1984-2 AND MAY LIMITED PARTNERSHIP 1984-2 NOTES TO FINANCIAL STATEMENTS (1) ACCOUNTING POLICIES AND OTHER MATTERS General Partnership May Drilling Partnership 1984-2, a Texas general partnership (the "General Partnership"), was organized by May Petroleum Inc. ("May") for the purposes of oil and gas exploration through May Limited Partnership 1984-2 (the "Limited Partnership"). The General Partnership was formed on September 18, 1984, with investors ("Participants") subscribing an aggregate of $8,633,000 in assessable $1,000 units. After the expenditure of the initial contributions of the Participants, additional mandatory assessments from each Participant are provided for under the terms of the general partnership agreement in an amount up to 25% of the initial contribution of the Participant. During 1985, May assessed the Participants 5% of initial contributions. No additional assessments have been made since 1985. The general partnership agreement requires that the manager, Hallwood Energy Partners, L.P. ("HEP"), offer to repurchase partnership interests from Participants for cash at amounts to be determined by appraisal (as set forth in the partnership agreement) of the Limited Partnership's net assets no later than December 31, 1988, and during each succeeding year, if such net assets are positive. The manager has made repurchase offers in all years since 1989. As the General Partnership is the sole limited partner of the Limited Partnership, and there are no other revenues or expenses of the General Partnership, its results of operations, changes in partners' capital and cash flows are equal to the limited partner's share of the Limited Partnership's results of operations, changes in partners' capital and cash flows as set forth herein. Therefore, separate statements of operations, changes in net assets in liquidation, changes in partners' capital and cash flows are not presented for the General Partnership. Limited Partnership The Limited Partnership, a Texas limited partnership, was organized by May and the General Partnership for the purpose of oil and gas exploration and the production of crude oil, natural gas and petroleum products. The Limited Partnership's oil and gas reserves are located in prospects in south Louisiana. Among other things, the terms of the limited partnership agreement (the "Agreement") give the general partner the authority to borrow funds. The Agreement also requires that the general partner's total capital contributions to the Limited Partnership as of each year-end, including unrecovered general partner acreage and equipment advances, must be compared to total Limited Partnership expenditures from inception to date, and if such contributions are less than 15% of such expenditures, an additional contribution in the amount of the deficiency is required. As of December 31, 1999, all such contributions had been accrued. On June 30, 1987, May sold to HEP all of its economic interest in the Limited Partnership and account receivable balances due from the Limited Partnership. HEP became the general partner of the Limited Partnership in 1988. The terms of the partnership agreements governing the General Partnership and the Limited Partnership provide for a fifteen year term of existence which extends through September 18, 1999. The partnerships are expected to be liquidated prior to the end of the second quarter of 2000. As a result, the General Partnership and the Limited Partnership changed their basis of accounting from the going concern basis to the liquidation basis effective December 31, 1998. Accordingly, assets have been valued at estimated realizable value, net of estimated disposition costs, and liabilities have been adjusted to estimated settlement amounts, as follows (in thousands): December 31, 1999 1998 ---- ---- Appreciation of oil and gas properties $ 76 $ 77 Deferral of appreciated gain on oil and gas properties (76) (77) The Partnership obtained fair market appraisals of its properties as of December 31, 1999 and 1998. When the appraised value is compared to the historical net carrying value of the Limited Partnership's oil and gas properties, there is an appreciation of $76,000 and $77,000 at December 31, 1999 and 1998, respectively. Because of the inherent uncertainty about the timing and amount of the gain that may ultimately be realized, such estimated gain has been deferred at December 31, 1999 and 1998. The statements of operations, and cash flows of the Limited Partnership for each of the two years in the period ended December 31, 1998 have been prepared using the historical cost (going concern) basis of accounting on which the General Partnership and the Limited Partnership had previously reported their financial condition and results of operations. The Limited Partnership will be wound up prior to the end of the second quarter of 2000. This process includes preparing a final accounting, paying the liabilities of the Drilling Partnership and the Limited Partnership, and making a liquidating distribution in accordance with the capital accounts of the partners. The general partner believes that it would be in the best interest of the limited partners to sell the assets of the Limited Partnership and distribute any cash remaining after payment of liabilities. The general partner intends to sell the investors' interest in the Freddie Aker #1 well at a public auction in the first quarter of 2000. Sharing of Costs and Revenues Capital costs, as defined by the Agreement, for commercially productive wells and the costs related to the organization of the Limited Partnership are borne by the general partner. Noncapital costs and direct expenses, as defined by the Agreement, are charged 1% to the general partner and 99% to the limited partner. Oil and gas sales, operating expenses and general and administrative overhead are shared so that the general partner's allocation will equal the percentage that the amount of Limited Partnership expenses, as defined, allocated to the general partner bears to the aggregate amount of Limited Partnership expenses allocated to the general partner and the limited partner, plus 15 percentage points, but in no event will the general partner's allocation exceed 50%. The sharing ratio for each of the last three years was as follows: 1999 1998 1997 ---- ---- ---- Limited Partner 68.0% 68.1% 68.2% General Partner 32.0% 31.9% 31.8% Significant Customers For the years ended December 31, 1999, 1998 and 1997, purchases by the following companies exceeded 10% of the total oil and gas revenues of the Limited Partnership: 1999 1998 1997 ---- ---- ---- Conoco Inc. 68% 48% 41% Plains All American Inc. 31% Marathon Petroleum Company 16% 39% TXG Gas Marketing 17% 19% Scurlock Permian LLC 17% Although the Limited Partnership sells the majority of its production to a small number of purchasers, there are numerous other purchasers in the area, so the loss of any significant customer would not adversely affect the Limited Partnership's operations. Income Taxes No provision for federal income taxes is included in the financial statements of the Limited Partnership or the General Partnership because, as partnerships, they are not subject to federal income tax and the tax effects of their activities accrue to the partners. The partnerships' tax returns, the qualification of the General and Limited Partnerships as partnerships for federal income tax purposes, and the amount of taxable income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes to the partnerships' taxable income or loss, the tax liability of the partners could change accordingly. Oil and Gas Properties Prior to December 31, 1998, the Limited Partnership followed the full cost method of accounting for oil and gas properties and, accordingly, capitalized all costs associated with the exploration and development of oil and gas reserves. The capitalized costs of evaluated properties, including the estimated future costs to develop proved reserves, are amortized on the units of production basis. Full cost amortization per dollar of gross oil and gas revenues was $.13 in 1999, $.03 in 1998 and $.03 in 1997. Generally no gains or losses are recognized on the sale or disposition of oil and gas properties. Maintenance and repairs are charged against income when incurred. Gas Balancing The Limited Partnership uses the sales method of accounting for gas balancing. Under this method, the Limited Partnership recognizes revenue on all of its sales of production, and any over production or under production is recovered or repaid at a future date. As of December 31, 1999, the Limited Partnership had a net over-produced position of 1,064 mcf ($2,873 valued at year-end gas prices). The General Partner believes that this imbalance can be made-up from production on the existing well. The reserves disclosed in Supplemental Oil and Gas Reserve Information have been decreased by 1,064 mcf in order to reflect the Partnership's gas balancing position. Use of Estimates The preparation of the financial statements for the Limited Partnership and General Partnership 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 period. Actual results could differ from these estimates. Related Party Transactions Hallwood Petroleum, Inc. ("HPI"), a subsidiary of the general partner, pays all costs and expenses of operations and receives all revenues associated with the Limited Partnership's properties. At month end, HPI distributes revenues in excess of costs to the Limited Partnership. The Partnership had a payable to HPI of $63,000 as of December 31, 1999 and a receivable from HPI of $30,000 as of December 31, 1998. These balances represent net revenue less operating costs and expenses. Cash Flows All highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents. Recently Issued Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. SFAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. Reclassification of financial statements for earlier periods provided for comparative purposes is required. The Limited Partnership adopted SFAS 130 on January 1, 1998. The Limited Partnership does not have any items of other comprehensive income for the years ended December 31, 1999, 1998 and 1997. Therefore, total comprehensive income is the same as net income for those periods. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for reporting selected information about operating segments and related disclosures about products and services, geographic areas, and major customers. SFAS 131 requires that an entity report financial and descriptive information about its operating segments which are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Limited Partnership adopted SFAS 131 in 1998. The Limited Partnership engages in the development, production and sale of oil and gas, and the acquisition, exploration, development and operation of oil and gas properties in the continental United States. These activities exhibit similar economic characteristics and involve the same products, production processes, class of customers, and methods of distribution. Management of the Limited Partnership evaluates its performance as a whole rather than by product or geographically. As a result, the Limited Partnership's operations consist of one reportable segment. (2) GENERAL AND ADMINISTRATIVE OVERHEAD HPI conducts the day to day operations of the Limited Partnership and other affiliated entities of HEC. The costs of operating the entities are allocated to each entity based upon the time spent on that entity. General and administrative overhead allocated by HPI to the Limited Partnership totaled $26,000 in 1999, $27,000 in 1998 and $32,000 in 1997. (3) INCOME TAXES As a result of differences between the accounting treatment of certain items for income tax purposes and financial reporting purposes, primarily depreciation, depletion and amortization of oil and gas properties and the recognition of intangible drilling costs as an expense or capital item, the income tax basis of oil and gas properties differs from the basis used for financial reporting purposes. At both December 31, 1999 and 1998, the income tax bases of the Limited Partnership's oil and gas properties were approximately $4,100. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (Unaudited) The following tables contain certain costs and reserve information related to the Limited Partnership's oil and gas activities. The Limited Partnership has no long-term supply agreements and all reserves are located within the United States. Costs Incurred - For the Year Ended December 31, 1999 1998 1997 ---- ---- ---- (In thousands) Development costs $ 94 $ - $ 73 === === === Oil and Gas Reserves (valued at year-end prices discounted at 10%) -
1999 1998 1997 ---- ---- ---- Mcf Bbls Mcf Bbls Mcf Bbls --- ---- --- ---- --- ---- (In thousands) Total Proved Reserves: Beginning of period 105 10 290 27 345 33 Revisions to previous estimates 47 4 (30) (3) 203 18 Production (73) (7) (155) (14) (258) (24) ---- --- ---- - ---- ---- ---- End of period 79 7 105 10 290 27 ==== ==== ==== ==== ==== ===== Proved Developed Reserves: Beginning of period 105 10 290 27 345 33 ==== === ==== ==== ==== ===== End of period 79 7 105 10 290 27 ===== ==== ==== ==== ==== =====
Certain reserve value information is provided directly to partners pursuant to the Agreement. Accordingly, such information is not presented herein. ITEM 9 - DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Drilling Partnership and Limited Partnership are managed by affiliates of HEC and do not have directors or executive officers. ITEM 11 - EXECUTIVE COMPENSATION The partnerships pay no salaries or other direct remuneration to officers, directors or key employees of the general partner or HPI. The Limited Partnership reimburses the general partner for general and administrative costs incurred on behalf of the partnerships. See Note 2 to the Financial Statements. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT To the knowledge of the general partner, no person owns of record or beneficially more than 5% of the Drilling Partnership's outstanding units, other than HEP, the address of which is 4610 S. Ulster Street Parkway, Denver, Colorado 80237, and which beneficially owns approximately 34% of the outstanding units. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information with respect to the Limited Partnership and its relationships and transactions with the general partner, see Part I, Item 1 and Part II, Item 7. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a. Financial Statements and Schedules: See Index at Item 8. b. Reports on Form 8-K - None. c. Exhibits: 3.1 The General Partnership Agreement and the Limited Partnership Agreement filed as an Exhibit to Registration Statement No. 0-89194, are incorporated herein by reference. 27 Financial Data Schedule SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Partnerships have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. MAY DRILLING PARTNERSHIP 1984-2 MAY LIMITED PARTNERSHIP 1984-2 By: HALLWOOD ENERGY PARTNERS, L.P. General Partner By: HEC ACQUISITION CORP. General Partner Date: March 6, 2000 By: /s/William L.Guzzetti William L. Guzzetti President, Chief Executive Officer and Director 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 dates indicated. Signature Title Date /s/William J. Baumgartner Vice President March 6, 2000 - --------------------------- William J. Baumgartner Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 FDS MAY LIMITED PARTNERSHIP 1984-2
5 This schedule contains summary financial information extracted from Form 10-K for the year ended December 31, 1999 for May Litmited Partnership 1984-2 and is qualified in its entirety by reference to such Form 10-K. 0000757385 May Limited Partnership 1984-2 1,000 12-MOS DEC-31-1999 DEC-31-1999 92 0 85 0 0 177 144 0 321 79 0 0 0 0 0 321 304 309 0 49 0 0 0 179 0 179 0 0 0 179 0 0
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