ITEM 1.
Business
Mewbourne Energy Partners 01-A, L.P. (the “Registrant” or the “Partnership”) is a limited partnership organized under the laws of the State of Delaware on February 23, 2001 (date of inception). Its managing general partner is Mewbourne Development Corporation, a Delaware corporation (“MD”).
A Registration Statement was filed pursuant to the Securities Act of 1933, as amended, registering limited partnership interests aggregating $6,000,000 and $24,000,000 in general partnership interests in a series of Delaware limited partnerships formed under Mewbourne Energy 01-02 Drilling Programs. The Registrant was declared effective by the Securities and Exchange Commission on June 12, 2001. On August 28, 2001, the offering of limited and general partnership interests in the Registrant was closed, with interests aggregating $15,000,000 originally being sold to 569 subscribers of which $13,513,000 were sold to 528 subscribers as general partner interests and $1,487,000 were sold to 41 subscribers as limited partner interests.
The Registrant engages primarily in oil and gas development and production and is not involved in any other industry segment. See the selected financial data in Item 6 and the financial statements in Item 8 of this report for a summary of the Registrant’s revenue, income and identifiable assets.
The sale of crude oil and natural gas produced by the Registrant will be affected by a number of factors that are beyond the Registrant’s control. These factors include the price of crude oil and natural gas, the fluctuating supply of and demand for these products, competitive fuels, refining, transportation, extensive federal and state regulations governing the production and sale of crude oil and natural gas, and other competitive conditions. It is impossible to predict with any certainty the future effect of these factors on the Registrant.
The Registrant does not have long-term contracts with purchasers of its crude oil or natural gas. The market for crude oil is such that the Registrant anticipates it will be able to sell all the crude oil it can produce. Natural gas will be sold to local distribution companies, gas marketers and end users on the spot market. The spot market reflects immediate sales of natural gas without long-term contractual commitments. The future market condition for natural gas cannot be predicted with any certainty, and the Registrant may experience delays in marketing natural gas production and fluctuations in natural gas prices.
Many aspects of the Registrant’s activities are highly competitive including, but not limited to, the acquisition of suitable drilling prospects and the procurement of drilling and related oil field equipment, and are subject to governmental regulation, both at Federal and state levels. The Registrant’s ability to compete depends on its financial resources and on the managing general partner’s staff and facilities, none of which are significant in comparison with those of the oil and gas exploration, development and production industry as a whole. Federal and state regulation of oil and gas operations generally includes drilling and spacing of wells on producing acreage, the imposition of maximum allowable production rates, the taxation of income and other items, and the protection of the environment.
The Registrant does not have any employees of its own. MD is responsible for all management functions. Mewbourne Oil Company (“MOC”), a wholly owned subsidiary of Mewbourne Holdings, Inc., which is also the parent of the Registrant’s managing general partner, has been appointed Program Manager and is responsible for activities in accordance with a Drilling Program Agreement entered into by the Registrant, MD and MOC. At March 30, 2006, MOC employed 157 persons, many of whom dedicated a part of their time to the conduct of the Registrant’s business during the period for which this report is filed.
The production of oil and gas is not considered subject to seasonal factors although the price received by the Registrant for natural gas sales will generally tend to increase during the winter months. Order backlog is not pertinent to the Registrant’s business.
ITEM 2.
ITEM 2.
Properties
The Registrant’s properties consist primarily of leasehold interests in properties on which oil and gas wells-in-progress are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests.
Fractional working interests in developmental oil and gas prospects located primarily in the Anadarko Basin of Western Oklahoma, the Texas Panhandle, and the Permian Basin of New Mexico and West Texas, were acquired by the Registrant, resulting in the Registrant’s participation in the drilling of oil and gas wells. At December 31, 2005, 39 wells had been drilled and were productive and 5 wells were drilled and abandoned. Of the 39 productive wells, 38 were producing and one was plugged and abandoned at December 31, 2005. The following table summarizes the Registrant’s drilling activity for the years ended December 31, 2005, 2004 and 2003:
Reserve estimates were prepared by Forrest A Garb & Associates, Inc., the Registrant’s independent petroleum consultants, in accordance with guidelines established by the Securities and Exchange Commission.
ITEM 3.
ITEM 3.
Legal Proceedings
The Registrant is not aware of any pending legal proceedings to which it is a party.
ITEM 4.
ITEM 4.
Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the period ended December 31, 2005 covered by this report.
PART II
ITEM 5.
ITEM 5.
Market for Registrant’s Common Equity and Related Stockholder Matters
At March 30, 2006, the Registrant had 15,000 outstanding limited and general partnerships interests held of record by 569 subscribers. There is no established public or organized trading market for the limited and general partner interests.
Revenues which, in the sole judgment of the managing general partner, are not required to meet the Registrant’s obligations will be distributed to the partners at least quarterly in accordance with the Registrant’s Partnership Agreement. Distributions made to limited and general partners during the years ended December 31, 2005, 2004 and 2003, were $1,814,334, $2,184,367 and $3,807,500, respectively.
ITEM 6.
ITEM 6.
Selected Financial Data
The following table sets forth selected financial data for the years ended December 31, 2005, 2004, 2003, 2002 and 2001:
ITEM 7.
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The Registrant was organized as a Delaware limited partnership on February 23, 2001. The offering of limited and general partnership interests began June 12, 2001 as a part of an offering registered under the name Mewbourne Energy Partners 01-02 Drilling Programs. The offering of limited and general partner interests in the Registrant concluded August 28, 2001, with total investor partner contributions of $15,000,000.
The Registrant was formed to engage primarily in the business of drilling development wells, to produce and market crude oil and natural gas produced from such properties, to distribute any net proceeds from operations to the general and limited partners and to the extent necessary, acquire leases which contain drilling prospects. The economic life of the Registrant depends on the period over which the Registrant’s oil and gas reserves are economically recoverable.
Results of Operations
The following table sets forth certain operating data for the years ended December 31, 2005, 2004 and 2003:
Year ended December 31, 2005 compared to the year ended December 31, 2004
Oil and natural gas sales. As shown in the table above, total oil and gas sales decreased $154,559 (5.2%) for the year ended December 31, 2005 as compared to the year ended December 31, 2004. Of this decrease, $142,856 and $1,038,468, respectively, were related to decreases in volumes of oil and gas sold. Volumes of oil and gas sold decreased 2,753 bbls of oil and 143,173 mcf of gas for the year ended December 31, 2005 as compared to the year ended December 31, 2004. The decrease in volumes of oil sold was primarily due to a substantial decline in the production of three wells. The decrease in volumes of gas sold was primarily due to normal declines in production. The wells with a substantial decline in oil production are not expected to return to previously high levels of production. These decreases were partially offset by increases of $61,558 and $965,207, respectively, related to increases in the average prices of oil and gas sold. Average oil and gas prices increased to $51.90 per bbl and $7.25 per mcf for the year ended December 31, 2005 from $38.09 per bbl and $5.39 per mcf for the year ended December 31, 2004.
Interest income. Interest income increased from $475 in 2004 to $977 in 2005.
Lease operating expense and production taxes. Lease operating expense increase from $390,032 in 2004 to $424,875 in 2005. Production taxes decreased from $232,845 in 2004 to $216,235 in 2005. Lease operating expense increased primarily due to well repair and maintenance expenses for three wells in 2005. Production taxes decreased due to decreased oil and gas revenues for 2005.
Depreciation, depletion and amortization. Depreciation, depletion and amortization decreased from $703,250 in 2004 to $495,645 in 2005. The decrease is primarily due to the decline in production volumes. There were no cost ceiling write-downs for 2005 or 2004.
Year ended December 31, 2004 compared to the year ended December 31, 2003
Oil and natural gas sales. As shown in the table above, total oil and gas sales decreased $1,540,274 (34.2%) for the year ended December 31, 2004 as compared to the year ended December 31, 2003. Of this decrease, $349,244 and $1,562,180, respectively, were related to decreases in volumes of oil and gas sold. Volumes of oil and gas sold decreased 9,169 bbls of oil and 289,617 mcf of gas for the year ended December 31, 2004 as compared to the year ended December 31, 2003. The decrease in volumes of oil sold was primarily due to a substantial decline in the production of two wells. The decrease in volumes of gas sold was primarily due to (i) normal declines in production and (ii) a substantial decline in the production of two wells, and the decrease was partially offset by the addition of one well late in 2003. The wells with a substantial decline in production are not expected to return to previously high levels of production. These decreases were partially offset by increases of $108,221 and $262,929, respectively, related to increases in the average prices of oil and gas sold. Average oil and gas prices increased to $38.09 per bbl and $5.39 per mcf for the year ended December 31, 2004 from $30.15 per bbl and $5.06 per mcf for the year ended December 31, 2003.
Interest income. Interest income decreased from $3,914 in 2003 to $475 in 2004 due to expenditures for the drilling of oil and gas wells, which resulted in a decrease of capital available for investments.
Lease operating expense and production taxes. Lease operating expense was $392,365 in 2003 and was comparative to $390,032 in 2004. Production taxes decreased from $362,687 in 2003 to $232,845 in 2004. Production taxes decreased due to decreased oil and gas revenues for 2004.
Depreciation, depletion and amortization. Depreciation, depletion and amortization decreased from $1,085,542 in 2003 to $703,250 in 2004. The decrease is primarily due to the decline in production volumes. There were no cost ceiling write-downs for 2004 or 2003.
Liquidity and capital resources
Net cash increased by $315 during the year ended December 31, 2005. Cash flows from operating activities were utilized primarily for cash distributions to partners. All wells for which funds have been committed have been drilled. Any incidental future capital expenditures incurred will be paid with revenues generated through oil and gas sales. Revenues which, in the sole judgment of the managing general partner, are not required to meet the Registrant’s obligations will be distributed to the partners at least quarterly in accordance with the Registrant’s Partnership Agreement.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates inherent in the Registrant’s financial statements include the estimate of oil and gas reserves and future abandonment costs as reported in the footnotes to the financial statements. Changes in oil and gas prices and the changes in production estimates could have a significant effect on reserve estimates. The reserve estimates directly impact the computation of depreciation, depletion, and amortization,
asset retirement obligation, and the ceiling test for the Registrant’s oil and gas properties.
The Registrant follows the full-cost method of accounting for its oil and gas activities. Under the full-cost method, all productive and non-productive costs incurred in the acquisition, exploration and development of oil and gas properties are capitalized. Depreciation, depletion and amortization of oil and gas properties subject to amortization is computed on the units-of-production method based on the proved reserves underlying the oil and gas properties. Oil and gas properties are subject to a quarterly ceiling test that limits such costs to the aggregate of the present value of future net cash flows of proved reserves and the lower of cost or fair value of unproved properties. The present value of future net cash flows has been prepared assuming year-end selling prices, year-end development and production costs and a 10 percent annual discount rate.
All financing activities of the Registrant are reported in the financial statements. The Registrant does not engage in any off-balance sheet financing arrangements.
Asset Retirement Obligations
On January 1, 2003, the Partnership adopted Statement of Financial Accounting Standard No. 143 (“FAS 143”), “Accounting for Asset Retirement Obligations.” This statement changes the financial accounting and reporting obligations associated with the retirement and disposal of long-lived assets, including the Partnership’s oil and gas properties, and the associated asset retirement costs.
A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled. Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.
The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life. The liability is discounted using the credit-adjusted risk-free rate. Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.
A reconciliation of the Partnership’s liability for well plugging and abandonment costs for the years ended December 31, 2005 and 2004, is as follows:
Organization and Related Party Transactions
The Partnership was organized on February 23, 2001. Mewbourne Development Corporation (MD) is managing general partner and Mewbourne Oil Company (MOC) is operator of oil and gas properties owned by the Partnership. Mewbourne Holdings, Inc. is the parent of both MD and MOC. Substantially all transactions are with MD and MOC.
In the ordinary course of business, MOC will incur certain costs that will be passed on to well owners of the well for which the costs were incurred. The partnership will receive their portion of these costs based upon their ownership in each well incurring the costs. These costs are referred to as operator charges and are standard and customary in the oil and gas industry. Operator charges include recovery of gas marketing costs, fixed rate overhead, supervision, pumping, and equipment furnished by the operator. Reimbursement to MOC for operator charges totaled $202,688, $191,754 and $227,868 for the years ended December 31, 2005, 2004 and 2003, respectively. Operator charges are billed in accordance with the program and partnership agreements.
In general, during any particular calendar year, the total amount of administrative expenses allocated to the Partnership by MOC shall not exceed the greater of (a) 3.5% of the Partnership’s gross revenue from the sale of oil and natural gas production during each year (calculated without any deduction for operating costs or other costs and expenses) or (b) the sum of $50,000 plus .25% of the capital contributions of limited and general partners. Under this arrangement, $91,715, $110,141 and $165,292 were allocated to the Partnership during the years ended December 31, 2005, 2004 and 2003, respectively.
The Partnership participates in oil and gas activities through a Drilling Program Agreement (the “Program”). The Partnership and MD are parties to the Program. The costs and revenues of the Program are allocated to MD and the Partnership as follows:
(1) As noted above, pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which approximate 30% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 30% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 30%.
The Partnership’s financial statements reflect its respective proportionate interest in the Program.
ITEM 8.
ITEM 8.
Financial Statements and Supplementary Data
The required financial statements of the Registrant are contained in a separate section of this report following the signature attestation. See “Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K”.
ITEM 9.
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
ITEM 9A. Contr ols and Procedures
MD maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. Within 90 days prior to the filing of this report, MD’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of it’s disclosure controls and procedures with the assistance and participation of other members of management. Based upon that evaluation, MD’s Chief Executive Officer and Chief Financial Officer concluded that it’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Partnership is required to disclose in the reports it files under the Securities Exchange Act of 1934 within the time periods specified in the SEC’s rules and forms. There have been no significant changes in MD’s internal controls or in other factors which could significantly affect internal controls subsequent to the date MD carried out its evaluation.
PART III
ITEM 10.
ITEM 10.
Directors and Executive Officers of the Registrant
The Registrant does not have any officers or directors. Under the Registrant’s Partnership Agreement, the Registrant’s managing partner, MD, is granted the exclusive right and full authority to manage, control and administer the Registrant’s business. MD is a wholly owned subsidiary of Mewbourne Holdings, Inc.
Set forth below are the names, ages and positions of the directors and executive officers of MD, the Registrant’s managing general partner. Directors of MD are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Curtis W. Mewbourne, age 70, formed Mewbourne Holdings, Inc. in 1965 and serves as Chairman of the Board and President of Mewbourne Holdings, Inc., MD and MOC. He has operated as an independent oil and gas producer for the past 41 years. Mr. Mewbourne received a Bachelor of Science Degree in Petroleum Engineering from the University of Oklahoma in 1957. Mr. Mewbourne is the father of Dorothy M. Cuenod, Ruth M. Buckley, and Julie M. Greene and the father-in-law of J. Roe Buckley.
J. Roe Buckley, age 43, joined Mewbourne Holdings, Inc. in July, 1990 and serves as Vice President and Chief Financial Officer of both MD and MOC. Mr. Buckley was employed by Mbank Dallas from 1985 to 1990 where he served as a commercial loan officer. He received a Bachelor of Arts in Economics from Sewanee in 1984. Mr. Buckley is the son-in-law of Curtis W. Mewbourne and is married to Ruth M. Buckley. He is also the brother-in-law of Dorothy M. Cuenod and Julie M. Greene.
Alan Clark, age 53, joined MOC in 1979 and serves as Treasurer and Controller of both MD and MOC. Prior to joining MOC, Mr. Clark was employed by Texas Oil and Gas Corporation as Assistant Supervisor of joint interest accounting from 1976 to 1979. Mr. Clark has served in several accounting/finance positions with MOC prior to his current assignment. Mr. Clark received a Bachelor of Business Administration from the University of Texas at Arlington.
Michael F. Shepard, age 59, joined MOC in 1986 and serves as Secretary and General Counsel of MD. He has practiced law exclusively in the oil and gas industry since 1979 and formerly was counsel with Parker Drilling Company and its Perry Gas subsidiary for seven years. Mr. Shepard holds the Juris Doctor degree from the University of Tulsa where he received the National Energy Law and Policy Institute award as the outstanding graduate in the Energy Law curriculum. He received a B.A. degree, magna cum laude, from the University of Massachusetts in 1976. Mr. Shepard is a member of the bar in Texas and Oklahoma.
Dorothy M. Cuenod, age 45, received a B.A. degree in Art History from The University of Texas and a Masters of Business Administration Degree from Southern Methodist University. Since 1984 she has served as a Director and Assistant Secretary of both MD and MOC. Ms. Cuenod is the daughter of Curtis W. Mewbourne and is the sister of Ruth M. Buckley and Julie M. Greene. She is also the sister-in-law of J. Roe Buckley.
Ruth M. Buckley, age 44, received a Bachelor of Science Degree in both Engineering and Geology from Vanderbilt University. Since 1987 she has served as a Director and Assistant Secretary of both MD and MOC. Ms. Buckley is the daughter of Curtis W. Mewbourne and is the sister of Dorothy M. Cuenod and Julie M. Greene. She is also the wife of J. Roe Buckley.
Julie M. Greene, age 42, received a B.A. degree in Business Administration from The University of Oklahoma. Since 1988 she has served as a Director and Assistant Secretary of both MD and MOC. Prior to that time she was employed by Rauscher, Pierce, Refsnes, Inc. Ms. Greene is the daughter of Curtis W. Mewbourne and is the sister of Dorothy M. Cuenod and Ruth M. Buckley. She is also the sister-in-law of J. Roe Buckley.
The organizational structure of the Partnership does not provide for an audit committee and therefore the Partnership does not have an audit committee or financial expert serving in such capacity.
ITEM 11.
ITEM 11.
Executive Compensation
The Registrant does not have any officers or directors. Management of the Registrant is vested in the managing general partner. None of the officers or directors of MD or MOC will receive remuneration directly from the Registrant, but will continue to be compensated by their present employers. The Registrant will reimburse MD and MOC and affiliates thereof for certain costs of overhead falling within the definition of Administrative Costs, including without limitation, salaries of the officers and employees of MD and MOC; provided that no portion of the salaries of the directors or of the executive officer of MOC or MD may be reimbursed as Administrative Costs.
ITEM 12.
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management
(a) Beneficial owners of more than five percent
(b) Security ownership of management
The Registrant does not have any officers or directors. The managing general partner of the Registrant, MD, has the exclusive right and full authority to manage, control and administer the Registrant’s business. Under the Registrant’s Partnership Agreement, limited and general partners holding a majority of the outstanding limited and general partnership interests have the right to take certain actions, including the removal of the managing general partner. The Registrant is not aware of any current arrangement or activity that may lead to such removal.
ITEM 13.
ITEM 13.
Certain Relationships and Related Transactions
Transactions with MD and its affiliates
Pursuant to the Registrant’s Partnership Agreement, the Registrant had the following related party transactions with MD and its affiliates during the years ended December 31, 2005, 2004 and 2003:
The Registrant participates in oil and gas activities through a drilling program created by the Program. Pursuant to the Program, MD pays approximately 30% of the Program’s capital expenditures and approximately 40% of its operating and general and administrative expenses. The Registrant pays the remainder of the costs and expenses of the Program. In return, MD is allocated approximately 40% of the Program’s revenues.
PART IV
ITEM 14.
ITEM 14.
Principal Accountant Fees and Services
The Partnership has retained PricewaterhouseCoopers LLP as their independent registered public accounting firm.
ITEM 15.
ITEM 15.
Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial statements
The following are filed as part of this annual report:
Report of Independent Registered Public Accounting Firm
Balance sheets as of December 31, 2005 and 2004
Statements of operations for the years ended December 31, 2005, 2004 and 2003
Statements of changes in partners’ capital for the years ended December 31, 2005, 2004 and 2003
Statements of cash flows for the years ended December 31, 2005, 2004 and 2003
Notes to financial statements
2. Financial statement schedules
None.
All required information is in the financial statements or the notes thereto, or is not applicable or required.
3. Exhibits
The exhibits listed on the accompanying index are filed or incorporated by reference as part of this annual report.
(b) Reports on Form 8-K
None.
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, thereto duly authorized.
Mewbourne Energy Partners 01-A, L.P.
By:
Mewbourne Development Corporation
Managing General Partner
By:
/s/ Curtis W. Mewbourne
Curtis W. Mewbourne
President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act
No annual report or proxy material has been sent to the Registrant’s security holders.
MEWBOURNE ENERGY PARTNERS 01-A, L.P.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
For the years ended December 31, 2005, 2004 and 2003
Report of Independent Registered Public Accounting Firm
To the Partners of Mewbourne Energy Partners 01-A, L.P. and to the Board of Directors of Mewbourne Development Corporation:
In our opinion, the accompanying balance sheets and the related statements of operations, of changes in partners’ capital and of cash flows present fairly, in all material respects, the financial position of Mewbourne Energy Partners 01-A, L.P. at December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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 Company adopted the provisions of Statement of Financial Accounting Standard No. 143, “Accounting for Asset Retirement Obligations,” as of January 1, 2003 and changed the manner in which it accounts for asset retirement costs.
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
March 31, 2006
Mewbourne Energy Partners 01-A, L.P.
BALANCE SHEETS
December 31, 2005 and 2004
The accompanying notes are an integral part of the financial statements.
Mewbourne Energy Partners 01-A, L.P.
STATEMENTS OF OPERATIONS
For the years ended December 31, 2005, 2004 and
The accompanying notes are an integral part of the financial statements.
Mewbourne Energy Partners 01-A, L.P.
STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
For the years ended December 31, 2005, 2004 and 2003
The accompanying notes are an integral part of the financial statements.
Mewbourne Energy Partners 01-A, L.P.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2005, 2004, and 2003
The accompanying notes are an integral part of the financial statements.
Mewbourne Energy Partners 01-A, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Accounting for Oil and Gas Producing Activities
Mewbourne Energy Partners 01-A, L.P., (the “Partnership”), a Delaware limited partnership engaged primarily in oil and gas development and production in Texas, Oklahoma, and New Mexico, was organized on February 23, 2001. The offering of limited and general partnership interests began June 12, 2001 as a part of an offering registered under the name Mewbourne Energy Partners 01-02 Drilling Programs, (the “Program”), and concluded August 28, 2001, with total investor contributions of $15,000,000 originally being sold to 569 subscribers of which $13,513,000 were sold to 528 subscribers as general partner interests and $1,487,000 were sold to 41 subscribers as limited partner interests. During the quarter ended June 30, 2003, all general partner interests were converted to limited partner interests.
The Program’s sole business is the development and production of oil and gas with a concentration on gas. Substantially all of the Program’s gas reserves are being sold regionally in the spot market. Due to the highly competitive nature of the spot market, prices are subject to seasonal and regional pricing fluctuations. In addition, such spot market sales are generally short-term in nature and are dependent upon obtaining transportation services provided by pipelines. The prices received for the Program’s oil and gas are subject to influences such as global consumption and supply trends.
The Partnership follows the full-cost method of accounting for its oil and gas activities. Under the full-cost method, all productive and non-productive costs incurred in the acquisition, exploration and development of oil and gas properties are capitalized. Depreciation, depletion and amortization of oil and gas properties subject to amortization is computed on the units-of-production method based on the proved reserves underlying the oil and gas properties. At December 31, 2005, 2004 and 2003 all capitalized costs were subject to amortization. Proceeds from the sale or other disposition of properties are credited to the full cost pool. Gains and losses are not recognized unless such adjustments would significantly alter the relationship between capitalized costs and the proved oil and gas reserves. Capitalized costs are subject to a quarterly ceiling test that limits such costs to the aggregate of the present value of future net cash flows of proved reserves and the lower of cost or fair value of unproved properties. There were no cost ceiling write-downs for the years ended December 31, 2005, 2004 and 2003.
Significant estimates inherent in the Registrant’s financial statements include the estimate of oil and gas reserves and future abandonment costs as reported in the footnotes to the financial statements. Changes in oil and gas prices and the changes in production estimates could have a significant effect on reserve estimates. The reserve estimates directly impact the computation of depreciation, depletion, and amortization, asset retirement obligation, and the ceiling test for the Registrant’s oil and gas properties.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash
The Partnership maintains all its cash in one financial institution. At various times throughout the year, the cash amount may be in excess of the amount insured by the Federal Deposit Insurance Corporation.
Asset Retirement Obligations
On January 1, 2003, the Partnership adopted Statement of Financial Accounting Standard No. 143 (“FAS 143”), “Accounting for Asset Retirement Obligations.” This statement changes the financial accounting and reporting obligations associated with the retirement and disposal of long-lived assets, including the Partnership’s oil and gas properties, and the associated asset retirement costs.
A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled. Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.
The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life. The liability is discounted using the credit-adjusted risk-free rate. Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.
A reconciliation of the Partnership’s liability for well plugging and abandonment costs for the years ended December 31, 2005 and 2004, is as follows:
Oil and Gas Sales
The Program’s oil and condensate production is sold, title passed, and revenue recognized at or near the Program’s wells under short-term purchase contracts at prevailing prices in accordance with arrangements which are customary in the oil industry. Sales of gas applicable to the Program’s interest are recorded as revenue when the gas is metered and title transferred pursuant to the gas sales contracts covering the Program’s interest in gas reserves. The Partnership uses the sales method to recognize oil and gas revenue whereby revenue is recognized for the amount of production taken regardless of the amount for which the Partnership is entitled based on its working interest ownership. As of December 31, 2005, 2004 and 2003, no material gas imbalances between the Partnership and other working interest owners existed.
Income Taxes
The Partnership is treated as a partnership for income tax purposes, and as a result, income of the Partnership is reported on the tax returns of the partners and no recognition is given to income taxes in the financial statements.
2. Organization and Related Party Transactions:
The Partnership was organized on February 23, 2001. Mewbourne Development Corporation (MD) is managing general partner and Mewbourne Oil Company (MOC) is operator of oil and gas properties owned by the Partnership. Mewbourne Holdings, Inc. is the parent of both MD and MOC. Substantially all transactions are with MD and MOC.
In the ordinary course of business, MOC will incur certain costs that will be passed on to well owners of the well on which the costs were incurred. The partnership will receive their portion of these costs based upon their ownership in each well incurring the costs. These costs are referred to as Operator charges and are standard and customary in the oil and gas industry. Operator charges include recovery of gas marketing costs, fixed rate overhead, supervision, pumping, and equipment furnished by the Operator. Reimbursement to MOC for operator charges totaled $202,688, $191,754 and $227,868 for the years ended December 31, 2005, 2004 and 2003, respectively. Operator charges are billed in accordance with the program and partnership agreements.
In general, during any particular calendar year, the total amount of administrative expenses allocated to the Partnership by MOC shall not exceed the greater of (a) 3.5% of the Partnership’s gross revenue from the sale of oil and natural gas production during each year (calculated without any deduction for operating costs or other costs and expenses) or (b) the sum of $50,000 plus .25% of the capital contributions of limited and general partners. Under this arrangement, $91,715, $110,141 and $165,292 were allocated to the Partnership during the years ended December 31, 2005, 2004 and 2003, respectively.
The Partnership participates in oil and gas activities through a Drilling Program Agreement, the Program. The Partnership and MD are parties to the Program agreement. The costs and revenues of the Program are allocated to MD and the Partnership as follows:
(1) As noted above, pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which will approximate 30% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 30% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 30%.
The Partnership’s financial statements reflect its respective proportionate interest in the Program.
3. Reconciliation of Net income per Statements of Operations with Net income per Federal Income Tax Return:
The following is a reconciliation of net income per statements of operations with net income per federal income tax return for the years ended December 31, 2005, 2004 and 2003:
The Partnership’s financial reporting bases of its net assets exceeded the tax bases of its net assets by $6,688,298, $6,966,884 and $7,322,224 at December 31, 2005, 2004 and 2003, respectively.
4. Supplemental Oil and Gas Information (unaudited):
The tables presented below provide supplemental information about oil and natural gas exploration and production activities as defined by SFAS No. 69, “Disclosures about Oil and Gas Producing Activities”.
Costs Incurred and Capitalized Costs
Costs incurred in oil and natural gas acquisition, exploration and development activities for the years ended December 31, 2005, 2004 and 2003:
Capitalized costs related to oil and natural gas acquisition, exploration and development activities for the years ended December 31, 2005 and 2004 are as follows:
Depreciation, depletion and amortization per one thousand cubic feet of gas equivalents was $1.29, $1.29 and $1.22 for the years ended December 31, 2005, 2004 and 2003, respectively.
Estimated Net Quantities of Proved Oil and Gas Reserves:
Reserve estimates as well as certain information regarding future production and discounted cash flows were determined by the Partnership’s independent petroleum consultants and MOC’s petroleum reservoir engineers. The Partnership considers reserve estimates to be reasonable, however, due to inherent uncertainties and the limited nature of reservoir data, estimates of oil and gas reserves are imprecise and subject to change over time as additional information becomes available.
There have been no favorable or adverse events that have caused a significant change in estimated proved reserves since December 31, 2005. The Partnership has no long-term supply agreements or contracts with governments or authorities in which it acts as producer nor does it have any interest in oil and gas operations accounted for by the equity method. All reserves are located onshore within the United States.
Proved Reserves:
(1) All of these reserves are categorized as proved developed as of December 31, 2005, 2004 and 2003.
Standardized Measure of Discounted Future Net Cash Flows:
For the years ended December 31, 2005, 2004 and 2003
The Standardized measure of discounted future net cash flows from estimated production of proved oil and gas reserves is presented in accordance with the provisions of Statement of Financial Accounting Standards No. 69, “Disclosures about Oil and Gas Producing Activities” (SFAS No. 69). In computing this data, assumptions other than those mandated by SFAS No. 69 could produce substantially different results. The Partnership cautions against viewing this information as a forecast of future economic conditions, revenues, or fair value.
The standardized measure has been prepared assuming year-end selling prices, year-end development and production costs and a 10 percent annual discount rate. No future income tax expense has been provided for the Partnership since it incurs no income tax liability. (See Significant Accounting Policies - Income Taxes in Note 1 to the Financial Statements.) The year-end prices were $58.27 per barrel of oil and $7.70 for MCF of gas as of December 31, 2005, $41.69 per barrel of oil and $5.48 for MCF of gas as of December 31, 2004, and $31.14 per barrel of oil and $5.68 for MCF of gas as of December 31, 2003.
Summary of changes in the Standardized Measure
MEWBOURNE ENERGY PARTNERS 01-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item 15(a)3.