ITEM 1. BUSINESS.
General
PDC 2001-C Limited Partnership ("the Partnership") is a limited partnership formed on November 9, 2001 pursuant to the West Virginia Uniform Limited Partnership Act. Petroleum Development Corporation ("PDC") serves as Managing General Partner of the Partnership.
Since the commencement of operations on November 9, 2001, the Partnership has been engaged in onshore, domestic gas exploration exclusively in the Rocky Mountain Region. A total of 9 limited partners contributed initial capital of $430,000; a total of 586 additional general partners contributed initial capital of $10,197,234; and PDC (Managing General Partner) contributed $2,311,423 in capital as a participant in accordance with contribution provisions of the Limited Partnership Agreement (the Agreement).
Under the terms of the Agreement, the allocation of revenues is as follows:
Allocation
of Revenues
Additional General and
Limited Partners
80%
==
Managing General Partner
20%
==
Operating and direct costs are allocated and charged to the additional general and limited partners and the Managing General Partner in the same percentages as revenues are allocated. Leasehold, drilling and completion costs, and equipment costs are borne 80% by the additional general and limited partners and 20% by the Managing General Partner.
Employees
The Partnership has no employees, however, PDC has approximately 90 employees which include a staff of geologists, petroleum engineers, landmen and accounting personnel who administer all of the Partnership's operations.
Plan of Operations
The Partnership participated in the drilling of nineteen gross (16.43 net) wells(all of which are productive) during 2001. The Partnership does not have unexpended initial capital and no additional drilling activity is planned.
See Item 2
ITEM 2. PROPERTIES.
Drilling Activity
The following table sets forth the results of drilling activity from November 9, 2001 (date of inception) to December 31, 2001, of the Partnership which was conducted in the Continental United States.
The Partnership has not participated in any exploratory wells. No additional drilling activity is planned.
Productive Wells
As outlined in the above table, the Partnership has a total of 19 gross productive wells (16.43 net wells) all of which are located in the Rocky Mountain Region.
A "productive well" is a well producing, or capable of producing, oil and gas in commercial quantities. For purposes of the above table, a "gross well" is one in which the Partnership has a working interest and a "net well" is a gross well multiplied by the Partnership's working interest to which it is entitled under its drilling agreement.
Title to Properties
The Partnership's interests in producing acreage are in the form of assigned direct interests in leases. Such properties are subject to customary royalty interests generally contracted for in connection with the acquisition of properties, and could be subject to liens incident to operating agreements, liens for current taxes and other burdens. The Partnership believes that none of these burdens materially interfere with the use of such properties in the operation of the Partnership's business.
As is customary in the oil and gas industry, little or no investigation of title is made at the time of acquisition of undeveloped properties (other than a preliminary review of local mineral records). Investigations are generally made, including in most cases receiving a title opinion of legal counsel, before commencement of drilling operations. A thorough examination of title has been made with respect to all of the Partnership's producing properties and the Partnership believes that it has generally satisfactory title to such properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Managing General Partner as driller/operator is not party to any legal action that would materially affect the Managing General Partner's or Partnership's operations or financial statements.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND SECURITY HOLDER MATTERS.
At December 31, 2001, PDC 2001-C Limited Partnership had one Managing General Partner, 9 Limited Partners who fully paid for 21.5 units at $20,000 per unit of limited partnership interests and a total of 586 Additional General Partners who fully paid for 509.8617 units at $20,000 per unit of additional general partnership interests. No established public trading market exists for the interests.
Limited and additional general partnership interests are transferable, however no assignee of an interest in the Partnership can become a substituted partner without the written consent of the transferor and the Managing General Partner.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below has been derived from audited financial statements of the Partnership appearing elsewhere herein.
Period from November 9,
2001 (date of inception)to
December 31, 2001
Oil and Gas Sales
$ -
Costs and Expenses
277,941
Net Loss
(271,143)
Allocation of Net loss:
Managing General Partner
(1,092)
Limited and Additional General
Partners
(270,051)
Per Limited and Additional General
Partner Unit
(508)
Total Assets
11,563,904
Distributions
Managing General Partner
-
Limited and Additional General Partner
-
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Partnership was funded with initial Limited and Additional General Partner contributions of $10,627,234 and the Managing General Partner contributed $2,311,423 in accordance with the Agreement. Syndication costs and management fee of $1,381,541 were incurred leaving available cash of $11,557,116 for Partnership activities.
The Partnership had net working capital at December 31, 2001 of $(5,462).
Operations are expected to be conducted with available funds and revenues generated from oil and gas activities. No bank borrowings are anticipated.
Results of Operations
2001 Results
The Partnership began exploration and development activities subsequent to the funding of the Partnership and completed these activities by December 31, 2001. Nineteen wells have been drilled, all of which have been completed as producers. No additional wells will be drilled.
The Partnership's revenues from natural gas sales will be affected by changes in prices. Natural gas prices are subject to general market conditions which drive the pricing changes.
The principal effects of inflation upon the Partnership relate to the costs required to drill, complete and operate oil and gas wells. The Partnership expects these costs to remain somewhat stable over the next year.
Critical Accounting Policies
Certain accounting policies are very important to the portrayal of Partnership's financial condition and results of operations and requires management's most subjective or complex judgments. The policies are as follows:
Impairment of Long-Lived Assets. The Partnership assesses impairment of capitalized costs of proved oil and gas properties by comparing net capitalized costs to undiscounted future cash flows on a field-by-filed basis using expected prices. Prices utilized in each year's calculation for measurement purposes and expected costs are held constant throughout the estimated life of the properties. If net capitalized costs exceed undiscounted future net cash flow, the measurement of impairment is based on estimated fair value which would consider future discounted cash flows.
The judgment used in applying the above policies are based on management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates. See additional discussions in this Management's Discussion and Analysis.
New Accounting Standards
Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") were issued in July 2001. SFAS No. 141 requires that all business combinations entered into subsequent to June 30, 2001 be accounted for under the purchase method of accounting and establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual value, and subsequently reviewed for impairment. The Partnership does not believe that the adoption of these statements will have a material effect on its financial position, results of operations, or cash flows.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires the Partnership to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Partnership also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Partnership is required to adopt SFAS No. 143 on January 1, 2003. At this time, the Partnership cannot reasonably estimate the effect of the adoption of this Statement on either its financial position, results of operations, or cash flows.
In August, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Partnership is required to adopt SFAS No. 144 on January 1, 2002. The Partnership does not believe that the adoption of this statement will have a material effect on its financial position, results of operations or cash flows.
Item 7.a. Quantitative and Qualitative Disclosure About Market Risk.
Market-Sensitive Instruments and Risk Management
The Partnership's primary market risk exposure is commodity price risk. This exposure is discussed in detail below:
Commodity Price Risk
The Managing General Partner of the Partnership utilizes commodity-based derivative instruments as hedges to manage a portion of its exposure to price risk from its natural gas sales. These instruments consist of NYMEX-traded natural gas futures contracts and option contracts. These hedging arrangements have the effect of locking in for specified periods (at predetermined prices or ranges of prices) the prices the Partnership will receive for the volume to which the hedge relates. As a result, while these hedging arrangements are structured to reduce the Partnership's exposure to decreases in price associated with the hedging commodity, they also limit the benefit the Partnership might otherwise have received from price increases associated with the hedged commodity. The Partnership's policy prohibits the use of natural gas future and option contracts for speculative purposes. At December 31, 2001, the Partnership had no futures or option contracts.
Disclosure of Limitations
As the information above incorporates only those exposures that exist at December 31, 2001, it does not consider those exposures or positions which could arise after that date. As a result, the Partnership's ultimate realized gain or loss with respect to commodity price fluctuations will depend on the exposures that arise during the period, the Partnership's hedging strategies at the time and commodity prices at the time.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The response to this Item is set forth herein in a separate section of this Report, beginning on Page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The Partnership has no directors or executive officers. The partnership is managed by Petroleum Development Corporation (the Managing General Partner). Petroleum Development Corporation's common stock is traded in the NASDAQ National Market and Form 10-K for 2001 has been filed with the Securities and Exchange Commission.
ITEM 11.
ITEM 11. MANAGEMENT REMUNERATIONS AND TRANSACTIONS.
NON-APPLICABLE.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
NON-APPLICABLE.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to the authorization contained in the Limited Partnership Agreement, PDC receives fees for services rendered and reimbursement of certain expenses from the Partnership. The following table presents compensation or reimbursements by the Partnership to PDC or other related parties during the period ended December 31, 2001.
Drilling and completion costs
$11,557,116
Syndication costs and management fee
1,381,541
Tax return preparation
4,680
Direct administrative cost
1,369
CONFORMED COPY
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
See Index to Financial Statements on
(2) Financial Statement Schedules
See Index to Financial Statements on page. All financial statement schedules are omitted because they are not required, inapplicable, or the information is included in the Financial Statements or Notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PDC 2001-C Limited Partnership
By its Managing General Partner 				Petroleum Development
Corporation
By /s/ James N. Ryan
James N. Ryan, Chairman
March 25, 2002
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/ James N. Ryan
James N. Ryan
Chairman, Chief Executive Officer and Director
March 25, 2002
/s/ Steven R. Williams
Steven R. Williams
President and Director
March 25, 2002
/s/ Dale G. Rettinger
Dale G. Rettinger
Executive Vice President,
Treasurer and Director
(principal financial and
accounting officer)
March 25, 2002
/s/ Roger J. Morgan
Roger J. Morgan
Secretary and Director
March 25, 2002
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Financial Statements for Annual Report
on Form 10-K to Securities and Exchange
Commission
Period from November 9, 2001
(Date of Inception)
to December 31, 2001
(With Independent Auditors' Report Thereon)
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Independent Auditors' Report
Balance Sheet - December 31, 2001
Statement of Operations - Period from November 9, 2001
(Date of Inception) to December 31, 2001
Statement of Partners' Equity - Period from November 9, 2001
(Date of Inception) to December 31, 2001
Statement of Cash Flows - Period from November 9, 2001
(Date of Inception) to December 31, 2001
Notes to Financial Statements
All financial statement schedules have been omitted because they are not applicable or not required or for the reason that the required information is shown in the financial statements or notes thereto.
Independent Auditors' Report
To the Partners
PDC 2001-C Limited Partnership:
We have audited the financial statements of PDC 2001-C Limited Partnership (a West Virginia limited partnership) as listed in the accompanying index. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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 PDC 2001-C Limited Partnership as of December 31, 2001, and the results of its operations and its cash flows for the period from November 9, 2001 (date of inception) to December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
KPMG LLP
Pittsburgh, Pennsylvania
March 11, 2002
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Balance Sheet
December 31, 2001
Assets
Current assets:
Cash
$ 6,788
Total current assets
6,788
Oil and gas properties, successful efforts method
(Notes 3 and 5):
Oil and gas properties
11,557,116
Less accumulated depreciation,
depletion and amortization
-
11,557,116
$11,563,904
==========
Current Liabilities and Partners' Equity
Current liabilities:
Accrued expenses
$ 12,141
Due to Managing General Partner
Total current liabilities
12,250
Partners' equity
11,551,654
$11,563,904
==========
See accompanying notes to financial statements.
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Operations
Period from November 9, 2001 (Date of Inception) to December 31, 2001
Revenues:
Sales of oil and gas
$ -
Interest income
6,798
6,798
Expenses (note 3):
Management fee
265,681
Independent engineering fee
3,000
Independent audit fee
3,211
Tax return preparation
4,680
Direct administrative cost
1,369
277,941
Net loss
$(271,143)
Net loss per limited and additional
general partner unit
$ (508)
=========
See accompanying notes to financial statements.
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Partners' Equity
Period from November 9, 2001 (Date of Inception) to December 31, 2001
Limited and
additional
general
partners
Managing
general
partner
Total
Partners' initial capital
contributions
$10,627,234
$2,311,423
$12,938,657
Syndication costs
(1,115,860)
-
(1,115,860)
Net loss
(270,051
)
(1,092
)
(271,143
)
Balance, December 31, 2001
$2,310,331
$11,551,654
==========
==========
==========
See accompanying notes to financial statements.
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Cash Flows
Period from November 9, 2001 (Date of Inception) to December 31, 2001
See accompanying notes to financial statements.
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements
December 31, 2001
(1) Summary of Significant Accounting Policies
Partnership Financial Statement Presentation Basis
The financial statements include only those assets, liabilities and results of operations of the partners which relate to the business of PDC 2001-C Limited Partnership (the Partnership). The statements do not include any assets, liabilities, revenues or expenses attributable to any of the partners' other activities.
Oil and Gas Properties
The Partnership follows the successful efforts method of accounting for the cost of exploring for and developing oil and gas reserves. Under this method, costs of development wells, including equipment and intangible drilling costs related to both producing wells and developmental dry holes, and successful exploratory wells are capitalized and amortized on an annual basis to operations by the units-of-production method using estimated proved developed reserves determined at year end by an independent petroleum engineer, Wright & Company, Inc. If a determination is made that an exploratory well has not discovered economically producible reserves, then its costs are expensed as dry hole costs.
The Partnership assesses impairment of capitalized costs of proved oil and gas properties by comparing net capitalized costs to undiscounted future net cash flows on a field-by-field basis using expected prices. Prices utilized in each year's calculation for measurement purposes and expected costs are held constant throughout the estimated life of the properties. If net capitalized costs exceed undiscounted future net cash flow, the measurement of impairment is based on estimated fair value which would consider future discounted cash flows.
Based on the Managing General Partner's experience, management believes site restoration, dismantlement and abandonment costs, net of salvage to be immaterial in relation to operating costs. These costs are being expensed when incurred.
Income Taxes
Since the taxable income or loss of the Partnership is reported in the separate tax returns of the partners, no provision has been made for income taxes on the Partnership's books.
Under federal income tax laws, regulations and administrative rulings, certain types of transactions may be accorded varying interpretations. Accordingly, the Partnership's tax return and, consequently, individual tax returns of the partners may be changed to conform to the tax treatment resulting from a review by the Internal Revenue Service.
(Continued)
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
Derivatives Financial Instruments
The Managing General Partner utilizes commodity based derivative instruments as hedges to manage a portion of the Partnership's exposure to price volatility stemming from natural gas production. These instruments consist of natural gas futures and option contracts traded on the New York Mercantile Exchange. The futures and option contracts hedge committed and anticipated natural gas sales generally forecasted to occur within a 12 month period. The Managing General Partner does not hold or issue derivatives for trading or speculative purposes.
As of December 31, 2001 the Partnership had no futures contracts or option contracts for the sale of natural gas.
All derivatives are recognized on the Partnership balance sheet at their fair value. On the date the derivative contract is entered into, the Managing General Partner designates the derivative as either a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), or a non-hedging derivative. The Managing General Partner formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash-flow hedges to specific firm commitments or forecasted transactions. The Managing General Partner also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Managing General Partner discontinues hedge accounting prospectively. No hedging activities were discontinued during 2001.
Changes in fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in accumulated other comprehensive income, until earnings are affected by the variability in cash flows of the designated hedged item. Changes in the fair value of non-hedging derivatives are reported in current-period earnings. The Partnership discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised. Additionally, if the derivative is dedesignated as a hedging instrument, because it is unlikely that a forecasted transaction will occur, a hedged firm commitment no longer meets the definition of a firm commitment, or Managing General Partner determines that designation of the derivative as a hedging instrument is no longer appropriate, hedge accounting will discontinue.
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
By using derivative financial instruments to hedge exposures to changes in commodity prices, the Managing General Partner exposes the Partnership to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Managing General Partner, which creates repayment risk. The Managing General Partner minimizes the credit or repayment risk in derivative instruments by entering into transactions with high-quality counterparties.
Use of Estimates
The Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Estimates which are particularly significant to the financial statements include estimates of oil and gas reserves and future cash flows from oil and gas properties which are used in assessing the impairment of long-lived assets.
New Accounting Standards
Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") were issued in July 2001. SFAS No. 141 requires that all business combinations entered into subsequent to June 30, 2001 be accounted for under the purchase method of accounting and establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual value, and subsequently reviewed for impairment. The Partnership does not believe that the adoption of these statements will have a material effect on its financial position, results of operations, or cash flows.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires the Partnership to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Partnership also records a corresponding asset which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Partnership is required to adopt SFAS No. 143 on January 1, 2003. At this time, the Partnership cannot reasonably estimate the effect of the adoption of this Statement on either its financial position, results of operations, or cash flows.
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
In August, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Partnership is required to adopt SFAS No. 144 on January 1, 2002. The Partnership does not believe that the adoption of this statement will have a material effect on its financial position, results of operations or cash flows.
(2) Organization
The Partnership was organized as a limited partnership on November 9, 2001, in accordance with the laws of the State of West Virginia for the purpose of engaging in the drilling, completion and operation of oil and gas development and exploratory wells in the Rocky Mountain Region.
Purchasers of partnership units subscribed to and fully paid for 21.5 units of limited partner interests and 509.8617 units of additional general partner interests at $20,000 per unit (Investor Partners). Petroleum Development Corporation has been designated the Managing General Partner of the Partnership. Although costs, revenues and cash distributions allocable to the limited and additional general partners are shared pro rata based upon the amount of their subscriptions, including the Managing General Partner to the extent of its capital contributions, there are significant differences in the federal income tax effects and liability associated with these different types of units in the Partnership.
Upon completion of the drilling phase of the Partnership's wells, all additional general partners units are converted into units of limited partner interests and thereafter become limited partners of the Partnership. Limited partners do not have any rights to convert their units into units of additional general partner interests in the Partnership.
In accordance with the terms of the Partnership Agreement (the Agreement), the Managing General Partner manages all activities of the Partnership and acts as the intermediary for substantially all Partnership transactions.
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(3) 	Transactions with Managing General Partner and Affiliates
The Partnership's transactions with the Managing General Partner include the following:
Period from November 9,
2001 (date of inception)
to December 31, 2001
Drilling and completion costs
$11,557,116
Offering and organization costs (includes
reimbursements of syndication cost and
management fee)
1,381,541
Tax return preparation
4,680
Direct administrative cost
1,369
(4) Allocation
The table below summarizes the participation of the Managing General Partner and the Investor Partners, taking account of the Managing General Partner's capital contribution equal to a minimum of 20% of the Initial Operating Capital, in the costs and revenues of the Partnership.
Partnership Costs
Investor
Partners(2)(3)
Managing
General
Partner(2)(3)
Broker-dealer Commissions and Expenses(1)
100%
0%
Management Fee
100%
0%
Lease Costs
0%
100%
Tangible Well Costs
0%
100%
Intangible Drilling and Development Costs
100%
0%
Total Drilling and Completion Costs
80%
20%
Operating Costs
80%
20%
Direct Costs
80%
20%
Administrative Costs
0%
100%
Partnership Revenues
Sale of Oil and Gas Production
80%
20%
Sale of Productive Properties
80%
20%
Sale of Equipment
0%
100%
Sale of Undeveloped Leases .
80%
20%
Interest Income
80%
20%
____________________
(1) Organization and Offering Costs, net of the Dealer Manager commissions, discounts, due diligence expenses, and wholesaling fees of the Partnership were paid by the Managing General Partner and not from Partnership funds. In addition, Organization and Offering Costs in excess of 10-1/2% of Subscriptions were paid by the Managing General Partner, without recourse to the Partnership.
(2) To the extent that Investor Partners receive preferred cash distributions, the allocations for Investor Partners will be increased accordingly and the allocation for the Managing General Partner will likewise be decreased.
PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(3) As set forth in the following paragraph, the allocation of profits, losses and cash distributions of the Managing General Partner might be increased, and the allocation of profits, losses, and cash distributions of the Investor Partners might be decreased in the event that the Managing General Partner were to invest more than the Managing General Partner's minimum required Capital Contribution to cover tangible equipment and lease costs.
(4) In accordance with the repurchase provision of the Partnership prospectus, PDC may repurchase units from the investor partners, which is entirely voluntary on the part of the partners. During 2001 there were no units purchased by PDC.
The Managing General Partner will pay for the Partnership's share of all leases and tangible well equipment. The entire Capital Contribution of the Investor Partners, after payment of brokerage commissions, due diligence reimbursement, and the Management Fee, will be utilized to pay for intangible drilling costs. In the event that the Intangible Drilling Costs exceed the funds of the Investor Partners available for payment of Intangible Drilling Costs (herein "excess IDC"), a portion of the Capital Contribution of the Managing General Partner may be used to pay such excess IDC. If the cost of Leases and tangible well equipment were to exceed the Managing General Partner's Capital Contribution of 21-3/4 percent of the aggregate Capital Contribution of the Investor Partners, then the Managing General Partner will increase its Capital Contribution to fund such additional capital requirements and the Managing General Partner's allocation of profits, losses, and cash distributions will be increased to equal the percentage arrived at by dividing the Capital Contribution made by the Managing General Partner by the Capital Available for Investment; the allocation of the Investor Partners will be decreased accordingly.
(5) Costs Relating to Oil and Gas Activities
The Partnership is engaged solely in oil and gas activities, all of which are located in the continental United States. Information regarding aggregate capitalized costs and results of operations for these activities is located in the basic financial statements. Costs capitalized for these activities at December 31, 2001, are as follows:
Lease acquisitions at cost
$ 416,050
Intangible development costs
9,245,693
Well equipment
1,895,373
$11,557,116
==========
The following costs were incurred for the Partnership's oil and
gas activities:
Period from
November 9, 2001
(date of inception)
to December 31, 2001
Costs incurred:
Property acquisition costs
416,050
Development costs
11,141,066
$11,557,116
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PDC 2001-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(6)	Income Taxes
	As a result of the differences in the treatment of certain items for income tax purposes as opposed to 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 December 31, 2001, the income tax basis of the partnership's oil and gas properties was $2,311,423.
(7) Supplemental Reserve Information (Unaudited)
Proved oil and gas reserves of the Partnership have been estimated by an independent petroleum engineer, Wright & Company, Inc. These reserves have been prepared in compliance with the Securities and Exchange Commission rules based on year-end prices, adjusted for hedging contracts. A copy of the reserve report has been made available to all partners. All of the partnership's reserves are proved developed. An analysis of the change in estimated quantities of proved developed oil and gas reserves is shown below:
Natural gas
(mcf)
Oil
(bbls)
Proved developed reserves as of
November 9, 2001 (date of inception)
-
-
Extensions, discoveries and
other additions
4,174,751
241,186
Production
-
-
Proved developed reserves as of
December 31, 2001
4,174,751
241,186
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