10-Q 1 s86b01.txt P&P 86-B 9/30/01 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2001 Commission File No. 33-3353B 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 / / PARKER & PARSLEY 86-B, LTD. TABLE OF CONTENTS Page Part I. Financial Information Item 1. Financial Statements Balance Sheets as of September 30, 2001 and December 31, 2000..................................... 3 Statements of Operations for the three and nine months ended September 30, 2001 and 2000............... 4 Statement of Partners' Capital for the nine months ended September 30, 2001............................... 5 Statements of Cash Flows for the nine months ended September 30, 2001 and 2000............................ 6 Notes to Financial Statements............................ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K......................... 12 Signatures............................................... 13 2 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) Part I. Financial Information Item 1. Financial Statements BALANCE SHEETS September 30, December 31, 2001 2000 ------------ ------------ (Unaudited) ASSETS Current assets: Cash $ 421,969 $ 220,466 Accounts receivable - oil and gas sales 158,545 260,049 ----------- ----------- Total current assets 580,514 480,515 ----------- ----------- Oil and gas properties - at cost, based on the successful efforts accounting method 11,816,863 11,805,173 Accumulated depletion (10,123,344) (10,032,733) ----------- ----------- Net oil and gas properties 1,693,519 1,772,440 ----------- ----------- $ 2,274,033 $ 2,252,955 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable - affiliate $ 55,225 $ 15,305 Partners' capital: Managing general partner 20,912 21,100 Limited partners (17,208 interests) 2,197,896 2,216,550 ----------- ----------- 2,218,808 2,237,650 ----------- ----------- $ 2,274,033 $ 2,252,955 =========== ===========

The financial information included as of September 30, 2001 has been prepared by the managing general partner without audit by independent public accountants. The accompanying notes are an integral part of these financial statements. 3 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) STATEMENTS OF OPERATIONS (Unaudited) Three months ended Nine months ended September 30, September 30, ---------------------- ------------------------ 2001 2000 2001 2000 --------- --------- ---------- ---------- Revenues: Oil and gas $ 336,535 $ 470,780 $1,184,086 $1,265,828 Interest 2,793 5,054 9,699 12,449 Gain on disposition of assets 8,222 1,255 8,222 3,505 -------- -------- --------- --------- 347,550 477,089 1,202,007 1,281,782 -------- -------- --------- --------- Costs and expenses: Oil and gas production 191,511 169,022 545,838 508,686 General and administrative 10,173 14,124 35,600 37,975 Depletion 32,039 26,659 90,611 84,153 -------- -------- --------- --------- 233,723 209,805 672,049 630,814 -------- -------- --------- --------- Net income $ 113,827 $ 267,284 $ 529,958 $ 650,968 ======== ======== ========= ========= Allocation of net income: Managing general partner $ 1,139 $ 2,673 $ 5,300 $ 6,510 ======== ======== ========= ========= Limited partners $ 112,688 $ 264,611 $ 524,658 $ 644,458 ======== ======== ========= ========= Net income per limited partnership interest $ 6.55 $ 15.38 $ 30.49 $ 37.45 ======== ======== ========= =========

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. 6 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) NOTES TO FINANCIAL STATEMENTS September 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 September 30, 2001 and for the three and nine months ended September 30, 2001 and 2000 include all adjustments and accruals consisting only of normal recurring accrual adjustments which are necessary for a fair presentation of the results for the interim period. These interim results are not necessarily indicative of results for a full year. Certain reclassifications may have been made to the September 30, 2000 financial statements to conform to the September 30, 2001 financial statement presentations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Partnership's Report on Form 10-K for the year ended December 31, 2000, as filed with the Securities and Exchange Commission, a copy of which is available upon request by writing to Rich Dealy, Vice President and Chief Accounting Officer, 5205 North O'Connor Boulevard, Suite 1400, Irving, Texas 75039-3746. Note 3. Proposal to acquire Partnership On October 22, 2001, Pioneer Natural Resources Company ("Pioneer") mailed materials to the limited partners of the Partnership soliciting their approval of an agreement and plan of merger among Pioneer, Pioneer Natural Resources USA, Inc. ("Pioneer USA"), a wholly-owned subsidiary of Pioneer, and the Partnership. Pioneer has valued the Partnership interest at $4,004,447 of which $3,934,914 is attributable to the limited partners, excluding Pioneer USA in its capacity as a general partner or a limited partner. If a majority of the limited partners approve the transaction, each limited partner will receive their proportionate share of the value in the form of Pioneer common stock. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Results of Operations Nine months ended September 30, 2001 compared with nine months ended September 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 6% to $1,184,086 for the nine months ended September 30, 2001 as compared to $1,265,828 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 natural gas liquids ("NGLs"). For the nine months ended September 30, 2001, 27,584 barrels of oil, 12,159 barrels of NGLs and 63,389 mcf of gas were sold, or 50,308 barrel of oil equivalents ("BOEs"). For the nine months ended September 30, 2000, 31,100 barrels of oil, 15,890 barrels of NGLs and 61,540 mcf of gas were sold, or 57,247 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 decreased $1.30, or 5%, from $28.59 for the nine months ended September 30, 2000 to $27.29 for the same period in 2001. The average price received per barrel of NGLs increased $.21, or 1%, from $14.13 during the nine months ended September 30, 2000 to $14.34 for the same period in 2001. The average price received per mcf of gas increased 64% from $2.47 for the nine months ended September 30, 2000 to $4.05 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 nine months ended September 30, 2001. Gains on disposition of assets of $8,222 and $3,505 were recognized during the nine months ended September 30, 2001 and 2000, respectively, due to equipment credits received on one well each year. Costs and Expenses: Total costs and expenses increased to $672,049 for the nine months ended September 30, 2001 as compared to $630,814 for the same period in 2000, an increase of $41,235, or 7%. This increase was due to increases in production costs and depletion, offset by a decline in general and administrative expenses ("G&A"). Production costs were $545,838 for the nine months ended September 30, 2001 and $508,686 for the same period in 2000, resulting in a $37,152 increase, or 7%. The increase was primarily due to higher ad valorem taxes and additional well maintenance costs incurred to stimulate well production. 8 G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased 6% from $37,975 for the nine months ended September 30, 2000 to $35,600 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. Depletion was $90,611 for the nine months ended September 30, 2001 as compared to $84,153 for the same period in 2000, representing an increase of $6,458, or 8%. This increase was attributable to a reduction in proved reserves during the period ended September 30, 2001 as a result of lower commodity prices as compared to the same period in 2000, 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 3,516 barrels for the nine months ended September 30, 2001 as compared to the same period in 2000. Three months ended September 30, 2001 compared with three months ended September 30, 2000 Revenues: The Partnership's oil and gas revenues decreased 29% to $336,535 for the three months ended September 30, 2001 as compared to $470,780 for the same period in 2000. The decrease in revenues resulted from lower average prices received and a decline in production. For the three months ended September 30, 2001, 9,183 barrels of oil, 5,009 barrels of NGLs and 20,146 mcf of gas were sold, or 17,550 BOEs. For the three months ended September 30, 2000, 10,509 barrels of oil, 5,484 barrels of NGLs and 20,505 mcf of gas were sold, or 19,411 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 decreased $4.47, or 15%, from $30.58 for the three months ended September 30, 2000 to $26.11 for the same period in 2001. The average price received per barrel of NGLs decreased $4.17, or 27%, from $15.47 during the three months ended September 30, 2000 to $11.30 for the same period in 2001. The average price received per mcf of gas decreased 37% from $3.15 during the three months ended September 30, 2000 to $1.99 for the same period in 2001. Gains on disposition of assets of $8,222 and $1,255 were recognized during the three months ended September 30, 2001 and 2000, respectively, due to equipment credits received on one well each year. Costs and Expenses: Total costs and expenses increased to $233,723 for the three months ended September 30, 2001 as compared to $209,805 for the same period in 2000, an increase of $23,918, or 11%. This increase was due to increases in production costs and depletion, offset by a decline in G&A. 9 Production costs were $191,511 for the three months ended September 30, 2001 and $169,022 for the same period in 2000, resulting in a $22,489 increase, or 13%. The increase was primarily due to higher ad valorem taxes and additional well maintenance costs incurred to stimulate well production, offset by lower production taxes. During this period, G&A decreased 28% from $14,124 for the three months ended September 30, 2000 to $10,173 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. Depletion was $32,039 for the three months ended September 30, 2001 as compared to $26,659 for the same period in 2000, representing an increase of $5,380, or 20%. This increase was attributable to a reduction in proved reserves during the period ended September 30, 2001 as a result of lower commodity prices as compared to the same period in 2000, 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 1,326 barrels for the three months ended September 30, 2001 as compared to the same period in 2000. Liquidity and Capital Resources Net Cash Provided by Operating Activities Net cash provided by operating activities increased $53,632 during the nine months ended September 30, 2001 from the same period ended September 30, 2000. This increase was due to a reduction of $172,901 in working capital and a decrease in G&A expenses of $2,375, offset by a decrease in oil and gas sales receipts of $84,492 and an increase in production costs of $37,152. The decrease in oil and gas receipts resulted from the decrease of $43,056 in oil prices during 2001 and a decline of $141,990 in production during 2001 as compared to the same period in 2000, offset by an increase in gas and NGL prices which contributed an additional $100,554. The increase in production costs was primarily due to higher ad valorem taxes and additional well maintenance costs incurred to stimulate well production, offset by lower production taxes. The decrease in G&A was primarily due to a lower percentage of the managing general partner's G&A being allocated (limited to 3% of oil and gas revenues) as a result of decreased oil and gas revenues. Net Cash Used in Investing Activities The Partnership's investing activities during the nine months ended September 30, 2001 and 2000 were related to upgrades of oil and gas equipment on various oil and gas properties. Proceeds from disposition of assets of $8,222 and $6,101 recognized during the nine months ended September 30, 2001 and 2000, respectively, consisted of equipment credits received on one well for the current period in 2001 and for equipment credits received on two wells for the same period in 2000. 10 Net Cash Used in Financing Activities For the nine months ended September 30, 2001, cash distributions to the partners were $548,800, of which $5,488 was distributed to the managing general partner and $543,312 to the limited partners. For the same period ended September 30, 2000, cash distributions to the partners were $655,618, of which $6,556 was distributed to the managing general partner and $649,062 to the limited partners. During 2001, the Partnership made distributions in March and July but no distributions were made by the Partnership during September pending the vote of the proposed merger of the Partnership into Pioneer Natural Resources USA, Inc. ("Pioneer USA"). For further information, see "Proposal to acquire partnerships" below. Proposal to acquire partnerships On October 22, 2001, Pioneer Natural Resources Company ("Pioneer") mailed definitive materials (the "proxy statement/prospectus") to solicit the approval of limited partners of 46 Parker & Parsley limited partnerships, including the Partnership, of an agreement and plan of merger among Pioneer, Pioneer USA, a wholly-owned subsidiary of Pioneer, and those limited partnerships. The special meetings of the limited partners to consider and vote on the merger proposal are scheduled for December 20, 2001. The record date to identify the limited partners who are entitled to notice of and to vote at the special meetings was September 21, 2001. Each partnership that approves the agreement and plan of merger and the other related merger proposals will merge with and into Pioneer USA. As a result, the partnership interests of those partnerships will be converted into the right to receive Pioneer common stock. The proxy statement/prospectus is non-binding and is subject to, among other things, consideration of offers from third parties to purchase any partnership or its assets and the majority approval of the limited partnership interests in each partnership. A copy of the proxy statement/prospectus may be obtained without charge upon request from Pioneer Natural Resources Company, 5205 North O'Connor Blvd., Suite 1400, Irving, Texas 75039, Attention: Investor Relations. The limited partners are urged to read the proxy statement/prospectus of Pioneer filed with the Securities and Exchange Commission because it contains important information about the proposed mergers, including information about the direct and indirect interests of Pioneer USA and Pioneer in the mergers. The limited partners may also obtain the final proxy statement/prospectus and other relevant documents relating to the proposed mergers free through the internet web site that the Securities and Exchange Commission maintains at www.sec.gov. --------------- (1) "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward looking statements that involve risks and uncertainties. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward looking statements. 11 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K - none 12 PARKER & PARSLEY 86-B, LTD. (A Texas Limited Partnership) S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARKER & PARSLEY 86-B, LTD. By: Pioneer Natural Resources USA, Inc., Managing General Partner Dated: November 9, 2001 By: /s/ Rich Dealy ---------------------------------- Rich Dealy, Vice President and Chief Accounting Officer 13

PARKER & PARSLEY 86-B LTD 10-Q