v2.3.0.11
Document and Entity Information Document
6 Months Ended
Jun. 30, 2011
Entity Information [Line Items]
Entity Registrant Name PDC 2002 D LTD PARTNERSHIP
Entity Central Index Key 0001224952
Current Fiscal Year End Date --12-31
Entity Filer Category Smaller Reporting Company
Document Type 10-Q
Document Period End Date Jun 30, 2011
Document Fiscal Year Focus 2011
Document Fiscal Period Focus Q2
Amendement Flag false
Entity Common Stock, Share Outstanding 0
v2.3.0.11
Condensed Balance Sheets (Unaudited) Statement (USD $)
Jun. 30, 2011
Dec. 31, 2010
Current assets:
Cash and cash equivalents $ 8,315 $ 133,238 [1]
Accounts receivable 109,929 133,783 [1]
Crude oil inventory 39,987 40,211 [1]
Due from Managing General Partner-derivatives 375,197 345,618 [1]
Total current assets 533,428 652,850 [1]
Natural gas and crude oil properties, successful efforts method, at cost 16,326,233 16,301,661 [1]
Less: Accumulated depreciation, depletion and amortization (10,643,605) (10,238,283) [1]
Natural gas and crude oil properties, net 5,682,628 6,063,378 [1]
Due from Managing General Partner-derivatives 447,156 556,021 [1]
Other assets 95,800 86,464 [1]
Total noncurrent assets 6,225,584 6,705,863 [1]
Total Assets 6,759,012 7,358,713 [1]
Current liabilities:
Accounts payable and accrued expenses 12,537 40,662 [1]
Due to Managing General Partner-derivatives 303,401 297,142 [1]
Due to Managing General Partner-other, net 330,882 587,730 [1]
Total current liabilities 646,820 925,534 [1]
Due to Managing General Partner-derivatives 321,548 420,505 [1]
Asset retirement obligations 465,297 451,630 [1]
Total liabilities 1,433,665 1,797,669 [1]
Commitments and contingent liabilities     [1]
Partners' equity:
Managing General Partner 1,263,156 1,306,336 [1]
Limited Partners - 1,455.26 units issued and outstanding 4,062,191 4,254,708 [1]
Total Partners' equity 5,325,347 5,561,044 [1]
Total Liabilities and Partners' Equity $ 6,759,012 $ 7,358,713 [1]
[1] *Derived from audited 2010 balance sheet
v2.3.0.11
Condensed Balance Sheet Parenthetical
Jun. 30, 2011
Dec. 31, 2010
Units of Limited Partnership Interest Issued 1,455.26 1,455.26
Units of Limited Partnership, Interest Outstanding 1,455.26 1,455.26
v2.3.0.11
Condensed Statements of Operations (Unaudited) Statement (USD $)
3 Months Ended 6 Months Ended
Jun. 30, 2011
Jun. 30, 2010
Jun. 30, 2011
Jun. 30, 2010
Revenues:
Natural gas, NGLs and crude oil sales $ 327,134 $ 323,102 $ 690,973 $ 727,436
Commodity price risk management gain, net 98,152 155,864 42,746 617,889
Total revenues 425,286 478,966 733,719 1,345,325
Operating costs and expenses:
Natural gas, NGLs and crude oil production costs 121,324 323,226 274,212 734,672
Direct costs - general and administrative 40,013 4,917 235,970 6,915
Depreciation, depletion and amortization 196,534 275,553 405,322 557,099
Accretion of asset retirement obligations 6,885 6,483 13,667 12,873
Total operating costs and expenses 364,756 610,179 929,171 1,311,559
Income (loss) from operations 60,530 (131,213) (195,452) 33,766
Interest income 28 46 77 93
Net income (loss) 60,558 (131,167) (195,375) 33,859
Net income (loss) allocated to partners 60,558 (131,167) (195,375) 33,859
Less: Managing General Partner interest in net income (loss) 12,112 (26,233) (39,075) 6,772
Net income (loss) allocated to Investor Partners 48,446 (104,934) (156,300) 27,087
Net income (loss) per Investor Partner unit $ 33 $ (72) $ (107) $ 19
Investor Partner units outstanding 1,455.26 1,455.26 1,455.26 1,455.26
v2.3.0.11
Condensed Statements of Cash Flows (Unaudited) Statement (USD $)
6 Months Ended
Jun. 30, 2011
Jun. 30, 2010
Cash flows from operating activities:
Net income (loss) $ (195,375) $ 33,859
Adjustments to net income (loss) to reconcile to net cash provided by operating activities:
Depreciation, depletion and amortization 405,322 557,099
Accretion of asset retirement obligations 13,667 12,873
Unrealized gain on derivative transactions (13,412) (407,875)
Changes in operating assets and liabilities:
Decrease in accounts receivable 23,854 19,002
Decrease (increase) in crude oil inventory 224 (3,875)
Increase in other assets (9,336) (9,370)
Increase (decrease) in accounts payable and accrued expenses (28,125) 184,978
Increase (decrease) in Due to Managing General Partner - other, net (256,848) 223,492
Decrease in Due from Managing General Partner - other, net 0 54,375
Net cash provided by (used in) operating activities (60,029) 664,558
Cash flows from investing activities:
Capital expenditures for natural gas and crude oil properties (24,572) (25,003)
Net cash used in investing activities (24,572) (25,003)
Cash flows from financing activities:
Distributions to Partners (40,322) (639,462)
Net cash used in financing activities (40,322) (639,462)
Net increase (decrease) in cash and cash equivalents (124,923) 93
Cash and cash equivalents, beginning of period 133,238 [1] 125,978
Cash and Cash Equivalents, end of period $ 8,315 $ 126,071
[1] *Derived from audited 2010 balance sheet
v2.3.0.11
General and Basis of Presentation
6 Months Ended
Jun. 30, 2011
Organization, Consolidation and Presentation of Financial Statements [Abstract]
General and Basis of Presentation
General and Basis of Presentation


PDC 2002-D Limited Partnership (the “Partnership” or the “Registrant”) was organized as a limited partnership, in accordance with the laws of the State of West Virginia for the purpose of engaging in the exploration and development of natural gas and crude oil properties. Business operations of the Partnership commenced upon closing of an offering for the sale of Partnership units. Upon funding, the Partnership entered into a Drilling and Operating Agreement (“D&O Agreement”) with the Managing General Partner which authorizes Petroleum Development Corporation (“PDC”), which conducts business under the name PDC Energy, to conduct and manage the Partnership's business. In accordance with the terms of the Limited Partnership Agreement (the “Agreement”), the Managing General Partner is authorized to manage all activities of the Partnership and initiates and completes substantially all Partnership transactions.


As of June 30, 2011, there were 1,032 Investor Partners. PDC is the designated Managing General Partner of the Partnership and owns a 20% Managing General Partner ownership in the Partnership. According to the terms of the Agreement, revenues, costs and cash distributions of the Partnership are allocated 80% to the limited partners (“Investor Partners”), which are shared pro rata, based upon the number of units in the Partnership, and 20% to the Managing General Partner. The Managing General Partner may repurchase Investor Partner units under certain circumstances provided by the Agreement, upon request of an individual Investor Partner. Through June 30, 2011, the Managing General Partner has repurchased 143.1 units of Partnership interests from the Investor Partners at an average price of $5,360 per unit. As of June 30, 2011, the Managing General Partner owns 27.9% of the Partnership.


Beginning in April 2009, when the average Investor Partner's annual rate of return fell below 12.8%, a condition of obligation arose subject to Section 4.02 Distributions, of the Agreement. Pursuant to the Performance Standard Obligation provision, which expires in June 2013, the Partnership modified the distribution rate of cash distributions from that described in the previous paragraph, between the Managing General Partner and the Investor Partners. During the six months ended June 30, 2011 and 2010, distributions paid to the Managing General Partner were reduced and distributions to the Investor Partners were increased by $3,959 and $65,296, respectively as a result of the Preferred Cash Distribution made under the terms in Section 4.02. For more information concerning the Performance Standard Obligation, see Note 8, Partners' Equity and Cash Distributions to the Partnership financial statements that accompany the 2010 Form 10-K.


The Partnership expects continuing operations of its natural gas and crude oil properties until such time the Partnership's wells are depleted or become uneconomical to produce, at which time they may be sold or plugged, reclaimed and abandoned. The Partnership's maximum term of existence extends through December 31, 2050, unless dissolved by certain conditions stipulated within the Agreement which are unlikely to occur at this time, or by written consent of the Investor Partners owning a majority of outstanding units at that time.


In the Managing General Partner's opinion, the accompanying interim unaudited condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the Partnership's financial statements for interim periods in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in the audited financial statements have been condensed or omitted. The information presented in this quarterly report on Form 10-Q should be read in conjunction with the Partnership's audited financial statements and notes thereto included in the Partnership's 2010 Form 10-K. The Partnership's accounting policies are described in the Notes to Financial Statements in the Partnership's 2010 Form 10-K and updated, as necessary, in this Form 10-Q. The results of operations for the three and six months ended June 30, 2011, and the cash flows for the same periods, are not necessarily indicative of the results to be expected for the full year or any other future period.


Certain reclassifications have been made to correct the prior period disclosures to conform to the current year presentation, specifically related to the fair value level classification of certain derivative instruments. The reclassification had no impact on the Partnership's previously reported financial position, cash flows, net income or partners' equity. See Note 4, Fair Value Measurements and Disclosures, for additional information regarding the fair value classification of the Partnership's natural gas and crude oil derivative instruments.


On June 20, 2011, the Partnership, PDC and its wholly-owned subsidiary, DP 2004 Merger Sub, LLC (“DP Merger Sub”), a Delaware limited liability company, entered into an agreement and plan of merger (the “Merger Agreement”), in which PDC seeks to acquire the Partnership, subject to the vote and approval of a majority of the limited partnership units held, by Investor Partners of the Partnership, other than PDC and its affiliates (“non-affiliated investor partners”). Pending the outcome of the proposed Merger Agreement, the Managing General Partner suspended, as of April 7, 2011, the opportunity for an individual non-affiliated investor partner to request that PDC repurchase their respective limited partnership units. For more information on the proposed Merger Agreement, see Note 3, Transactions with Managing General Partner and Affiliates− Proposed Merger with PDC and DP 2004 Merger Sub, LLC, which follows.
v2.3.0.11
Recent Accounting Standards
6 Months Ended
Jun. 30, 2011
New Accounting Pronouncement or Change in Accounting Principle, Current Period Disclosures [Abstract]
Recent Accounting Standards
Recent Accounting Standards


Recently Adopted Accounting Standards


Fair Value Measurements and Disclosures


In January 2010, the Financial Accounting Standards Board ("FASB") issued changes related to fair value measurements requiring gross presentation of activities within the Level 3 roll forward, whereby entities must present separately information about purchases, sales, issuances and settlements. These changes were effective for the Partnership's financial statements issued for annual reporting periods, and for interim reporting periods within the year, beginning after December 15, 2010. The adoption of this change did not have a material impact on the Partnership's financial statements.


Recently Issued Accounting Standards


Fair Value Measurement


On May 12, 2011, the FASB issued changes related to fair value measurement. The changes represent the converged guidance of the FASB and the International Accounting Standards Board ("IASB") (collectively the "Boards") on fair value measurement. Many of the changes eliminate unnecessary wording differences between International Financial Reporting Standards ("IFRS") and U.S. GAAP. The changes expand existing disclosure requirements for fair value measurements categorized in Level 3 by requiring (1) a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, (2) a description of the valuation processes in place and (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs and the interrelationships between those inputs. In addition, the changes also require the categorization by level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position whose fair value must be disclosed. These changes are to be applied prospectively and are effective for public entities during interim and annual periods beginning after December 15, 2011. Early application is not permitted. With the exception of the disclosure requirements, the adoption of these changes is not expected to have a significant impact on the Partnership's financial statements.
v2.3.0.11
Transactions with Managing General Partner and Affiliates
6 Months Ended
Jun. 30, 2011
Related Party Transactions [Abstract]
Transactions with Managing General Partner and Affiliates
Transactions with Managing General Partner and Affiliates


The Managing General Partner transacts business on behalf of the Partnership under the authority of the D&O Agreement. Revenues and other cash inflows received on behalf of the Partnership are distributed to the Partners net of (after deducting) corresponding operating costs and other cash outflows incurred on behalf of the Partnership. The fair value of the Partnership's portion of unexpired derivative instruments is recorded on the condensed balance sheets under the captions “Due from Managing General Partner-derivatives,” in the case of net unrealized gains or “Due to Managing General Partner-derivatives,” in the case of net unrealized losses.


The following table presents transactions with the Managing General Partner reflected in the condensed balance sheet line item - “Due from (to) Managing General Partner-other, net,” which remain undistributed or unsettled with the Partnership's investors as of the dates indicated.
    
 
June 30, 2011
 
December 31, 2010
Natural gas, NGLs and crude oil sales revenues

collected from the Partnership's third-party customers
$
104,264


 
$
83,892


Commodity price risk management, realized gain
9,509


 
48,073


Other (1)
(444,655
)
 
(719,695
)
Total Due to Managing General Partner-other, net
$
(330,882
)
 
$
(587,730
)


(1)
All other unsettled transactions, excluding derivative instruments, between the Partnership and the Managing General Partner. The majority of these are operating costs or general and administrative costs which have not been deducted from distributions.


The following table presents Partnership transactions, excluding derivative transactions which are more fully detailed in Note 5, Derivative Financial Instruments, with the Managing General Partner and its affiliates for the three and six months ended June 30, 2011 and 2010. “Well operations and maintenance” and “Gathering, compression and processing fees” are included in the “Natural gas, NGLs and crude oil production costs” line item on the condensed statements of operations.    
 
 Three months ended June 30,
 
Six months ended June 30,
 
2011
 
2010
 
2011
 
2010
 Well operations and maintenance
$
94,617


 
$
296,167


 
$
219,577


 
$
675,540


 Gathering, compression and processing fees
11,018


 
11,415


 
21,763


 
23,501


 Direct costs - general and administrative
40,013


 
4,917


 
235,970


 
6,915


 Cash distributions (1) (2)
3,776


 
26,973


 
7,637


 
116,669




(1)
Cash distributions include $1,744 and $3,532 during the three and six months ended June 30, 2011, respectively, and $15,135 and $54,072 during the three and six months ended June 30, 2010, respectively, related to equity cash distributions on Investor Partner units repurchased by PDC.
(2)
Cash distributions to the Managing General Partner were reduced by $1,922 and $3,959 during the three and six months ended June 30, 2011, respectively, and $22,802 and $65, 296 for the three and six months ended June 20, 2010, respectively, due to Preferred Cash Distributions made by the Managing General Partner to Investor Partners under the Performance Standard Obligation provision of the Agreement. For more information concerning this obligation, see Note 1, General and Basis of Presentation.


Proposed Merger with PDC and DP 2004 Merger Sub, LLC
On June 20, 2011, the Partnership, PDC and DP Merger Sub entered into the Merger Agreement, in which PDC seeks to acquire the Partnership, subject to the vote and approval of a majority of the limited partnership units held by non-affiliated investor partners. Pursuant to the Merger Agreement, if the merger is approved by the holders of a majority of the limited partnership units held by the non-affiliated investor partners of the Partnership, as well as, the satisfaction of other customary closing conditions, then the Partnership will merge with and into DP Merger Sub, the separate existence of the Partnership will terminate and the non-affiliated investor partners will have the right to receive cash payments in the aggregate amount of $5,280,132 or $4,024 per limited partnership unit, subject to any adjustments made to the merger consideration for certain increases in commodity prices between the date of signing the merger agreement and the filing of the definitive proxy statement, plus the sum of the amounts withheld, if any, from per unit cash distributions by the Partnership from October 1, 2010 through August 31, 2011 for the Partnership's Additional Codell Formation Development Plan, less the sum of the per unit cash distributions made after August 31, 2011 and before the transaction closes. DP Merger Sub shall be the surviving entity of the merger and shall be wholly-owned by PDC, and the limited partners will have no continuing interest in the Partnership, since the Partnership will cease as a separate business entity. The merger will become effective following the filing of a certificate of merger with the Secretaries of State of West Virginia and Delaware as soon as practicable after the last condition precedent to the merger has been satisfied, or waived. Following consummation of the merger, the non-affiliated investor partners will no longer participate in the Partnership's future earnings or any further economic benefit.
The Merger Agreement has been approved by PDC's Board of Directors (the “Board”); PDC, as sole member of the DP Merger Sub; and by the Special Committee formed by the Board, comprised of four directors of PDC who are not officers or employees of the Partnership or PDC and have no economic interest in the Partnership, to represent the interests of the non-affiliated investor partners holding limited partnership units.
The Merger Agreement among the Partnership, PDC and its subsidiary DP Merger Sub, may be terminated, and the merger abandoned:
should all parties agree by mutual consent to terminate the Merger Agreement;


by any party thereto, should the proposed merger not occur by December 15, 2011;


by any party thereto, should consummation of the merger become illegal or be otherwise prohibited by law or regulation;


by any party thereto, should any suit or action be pending against parties to the Merger Agreement challenging the legality or any aspect of the merger transaction;


by the Special Committee, on behalf of the Partnership and prior to approval by non-affiliated investor partners, should the Special Committee believe it has received a superior offer that is more favorable to the non-affiliated investor partners; or


by PDC or the Partnership, should either PDC or the Partnership fail to perform its obligations under the Merger Agreement and such failure has a non-curable material adverse effect on PDC or the Partnership, respectively, or materially and adversely affects the transactions contemplated by the Merger Agreement.


On June 23, 2011, the Partnership filed a preliminary proxy statement on Schedule 14A relating to the merger with the SEC. Although there is no assurance of the likelihood or timing of the merger transaction, upon clearance by the SEC, a definitive proxy statement will be mailed to the Partnership’s limited partners. Closing of the merger is conditioned on approval by a majority vote of non-affiliated investor partners on both proposals to (1) amend the limited partnership agreement to expressly provide non-affiliated investor partners the right to approve merger transactions and (2) approve the Merger Agreement, as described above. If approved by a majority vote of non-affiliated investor partners and after the filing of a certificate of merger with the Secretaries of State of West Virginia and Delaware, no additional filing or registration with, notification to, or authorization, consent or approval of, any governmental entity will be required in connection with the execution and delivery of the Merger Agreement by the Partnership, PDC or DP Merger Sub or the consummation by the Partnership, PDC or DP Merger Sub of the transactions contemplated thereby. Following consummation of the merger, the non-affiliated investor partners will no longer participate in the Partnership’s future earnings or any further economic benefit.  


Regardless of whether the merger is consummated, all costs and expenses incurred by PDC, the Partnership and DP Merger Sub in connection with the Merger Agreement shall be paid by PDC.
v2.3.0.11
Fair Value Measurements
6 Months Ended
Jun. 30, 2011
Fair Value Disclosures [Abstract]
Fair Value Financial Instruments
Fair Value Measurements and Disclosures


Derivative Financial Instruments


Determination of fair value. Fair value accounting standards have established a fair value hierarchy that prioritizes the inputs used in applying a valuation methodology. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, giving the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability, and their placement within the fair value hierarchy levels. The three levels of inputs that may be used to measure fair value are defined as:


Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.


Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including (i) quoted prices for similar assets or liabilities in active markets, (ii) quoted prices for identical or similar assets or liabilities in inactive markets, (iii) inputs other than quoted prices that are observable for the asset or liability and (iv) inputs that are derived from observable market data by correlation or other means.


Level 3 - Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability.


Derivative Financial Instruments. The Partnership measures the fair value of its derivative instruments based on a pricing model that utilizes market-based inputs, including but not limited to the contractual price of the underlying position, current market prices, natural gas and crude oil forward curves, discount rates such as the LIBOR curve for a similar duration of each outstanding position, volatility factors and nonperformance risk. Nonperformance risk considers the effect of the Managing General Partner's credit standing on the fair value of derivative liabilities and the effect of the Managing General Partner's counterparties' credit standings on the fair value of derivative assets, both inputs to the model are based on published credit default swap rates and the duration of each outstanding derivative position. The counterparties to the Partnership's derivative instruments are primarily financial institutions. The Managing General Partner validates the fair value measurement through (1) the review of counterparty statements and other supporting documentation, (2) the determination that the source of the inputs are valid, (3) the corroboration of the original source of inputs through access to multiple quotes, if available, or other information and (4) monitoring changes in valuation methods and assumptions. While the Managing General Partner uses common industry practices to develop its valuation techniques, changes in the pricing methodologies or the underlying assumptions could result in significantly different fair values. While the Managing General Partner believes its valuation method is appropriate and consistent with those used by other market participants, the use of a different methodology, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value.


The following table presents, for each hierarchy level, the Partnership's derivative assets and liabilities, both current and non-current portions, measured at fair value on a recurring basis.
 
June 30, 2011
 
December 31, 2010 (a)
 
 Level 2 (b)
 
 Level 3 (c)
 
 Total
 
 Level 2 (b)
 
 Level 3 (c)
 
 Total
 
 
 
 
 
 
 
 
 
 
 
 
 Assets:
 
 
 
 
 
 
 
 
 
 
 
 Commodity based derivatives
$
812,328


 
$
10,025


 
$
822,353


 
$
867,993


 
$
33,646


 
$
901,639


 Total assets
812,328


 
10,025


 
822,353


 
867,993


 
33,646


 
901,639


 
 
 
 
 
 
 
 
 
 
 
 
 Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 Commodity based derivatives
(49,398
)
 


 
(49,398
)
 
(84,806
)
 


 
(84,806
)
 Basis protection derivative contracts
(575,551
)
 


 
(575,551
)
 
(632,841
)
 


 
(632,841
)
 Total liabilities
(624,949
)
 


 
(624,949
)
 
(717,647
)
 


 
(717,647
)
 Net asset
$
187,379


 
$
10,025


 
$
197,404


 
$
150,346


 
$
33,646


 
$
183,992




(a) The Partnership reclassified its NYMEX-based natural gas fixed-price swaps from Level 1 to Level 2 (decreasing the previously reported net asset in Level 1 by approximately $868,000) and CIG-based basis swaps and crude oil fixed-price swaps from Level 3 to Level 2 (decreasing the previously reported net liability in Level 3 by approximately $718,000). The amounts presented reflect these reclassifications and conform to current period presentation.
(b) Includes the Partnership's fixed-price swaps and basis swaps.
(c) Includes the Partnership's natural gas collars.




The following table presents a reconciliation of the Partnership's Level 3 fair value measurements.
    
 
Six months ended
 
June 30, 2011
 
June 30, 2010 (1)
 Fair value, net asset, beginning of period
$
33,646


 
$
72,357


 Changes in fair value included in statement of operations line item:
 
 
 
 Commodity price risk management, net
(52,486
)
 
(111,325
)
 Settlements
28,865


 
72,910


 Fair value, net asset, end of period
$
10,025


 
$
33,942


 
 
 
 
Change in unrealized gain (loss) relating to assets (liabilities) still held as of
 


 
 
June 30, 2011 and 2010, respectively, included in statement of operations line item:
 
 
 
 Commodity price risk management, net
$
1,017


 
$
27,346




(1) The Partnership reclassified its CIG-based basis swaps and crude oil fixed-price swaps from Level 3 to Level 2 (decreasing the previously reported net liability at the beginning of the period by approximately $641,000). The amounts presented reflect these reclassifications and conform to current period presentation.




See Note 5, Derivative Financial Instruments, for additional disclosure related to the Partnership's derivative financial instruments.


Non-Derivative Financial Assets and Liabilities


The carrying values of the financial instruments comprising current assets and current liabilities approximate fair value due to the short-term maturities of these instruments.
v2.3.0.11
Derivative Financial Instruments
6 Months Ended
Jun. 30, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Derivative Financial Instruments
Derivative Financial Instruments


As of June 30, 2011, the Partnership had derivative instruments in place for a portion of its anticipated production through 2013 for a total of 399,408 MMbtu of natural gas and 1,960 Bbl of crude oil.


The following table presents the location and fair value amounts of the Partnership's derivative instruments on the accompanying condensed balance sheets. These derivative instruments were comprised of commodity collars, commodity fixed-price swaps and basis swaps.
 
 
 
 
 
Fair Value
 
 
 
 
 
June 30,
 
December 31,
Derivative instruments not designated as hedge(1):
 
Balance Sheet Line Item
 
2011
 
2010
Derivative Assets:
Current
 
 
 
 
 
 
 
Commodity contracts
 
Due from Managing General Partner-derivatives
 
$
375,197


 
$
345,618


 
Non Current
 
 
 
 
 
 
 
Commodity contracts
 
Due from Managing General Partner-derivatives
 
447,156


 
556,021


Total Derivative Assets
 
 
 
 
$
822,353


 
$
901,639


 
 
 
 
 
 
 
 
Derivative Liabilities:
Current
 
 
 
 


 
 


 
Commodity contracts
 
Due to Managing General Partner-derivatives
 
$
49,398


 
$
84,806


 
Basis protection contracts
 
Due to Managing General Partner-derivatives
 
254,003


 
212,336


 
Non Current
 
 
 
 
 
 
 
Basis protection contracts
 
Due to Managing General Partner-derivatives
 
321,548


 
420,505


Total Derivative Liabilities
 
 
 
$
624,949


 
$
717,647




(1)As of June 30, 2011 and December 31, 2010, none of the Partnership's derivative instruments were designated as hedges.


The following tables presents the impact of the Partnership's derivative instruments on the Partnership's accompanying condensed statements of operations.
 
 
 Three months ended June 30,
 
 
2011
 
2010
Statement of operations line item:
 
Reclassification of Realized Gains (Losses) Included in Prior Periods Unrealized
 
Realized and Unrealized Gains For the Current Period
 
Total
 
Reclassification of Realized Gains (Losses) Included in Prior Periods Unrealized
 
Realized and Unrealized Gains For the Current Period
 
Total
Commodity price risk management gain, net
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains
 
$
9,354


 
$
1,420


 
$
10,774


 
$
18,549


 
$
7,246


 
$
25,795


Unrealized gains (losses)
 
(9,354
)
 
96,732


 
87,378


 
(18,549
)
 
148,618


 
130,069


Total commodity price risk management gain, net
$


 
$
98,152


 
$
98,152


 
$


 
$
155,864


 
$
155,864


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
 
2011
 
2010
Statement of operations line item:
 
Reclassification of Realized Gains (Losses) Included in Prior Periods Unrealized
 
Realized and Unrealized Gains (Losses) For the Current Period
 
Total
 
Reclassification of Realized Gains (Losses) Included in Prior Periods Unrealized
 
Realized and Unrealized Gains For the Current Period
 
Total
Commodity price risk management gain, net
 
 
 
 
 
 
 
 
 
 
 
 
Realized gains (losses)
 
$
36,341


 
$
(7,007
)
 
$
29,334


 
$
120,572


 
$
89,442


 
$
210,014


Unrealized gains (losses)
 
(36,341
)
 
49,753


 
13,412


 
(120,572
)
 
528,447


 
407,875


Total commodity price risk management gain, net
$


 
$
42,746


 
$
42,746


 
$


 
$
617,889


 
$
617,889




Concentration of Credit Risk. The Managing General Partner makes extensive use of over-the-counter derivative instruments that enable the Partnership to manage a portion of its exposure to price volatility from producing natural gas and crude oil. These arrangements expose the Partnership to the credit risk of nonperformance by the counterparties. The Managing General Partner primarily uses financial institutions, who are also major lenders in the Managing General Partner's credit facility agreement, as counterparties to its derivative contracts. To date, the Managing General Partner has had no counterparty default losses. The Managing General Partner has evaluated the credit risk of the Partnership's derivative assets from counterparties using relevant credit market default rates, giving consideration to amounts outstanding for each counterparty and the duration of each outstanding derivative position. Based on this evaluation, the Managing General Partner has determined that the impact of the nonperformance of the counterparties on the fair value of the Partnership's derivative instruments was not significant.


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Commitments and Contingencies
6 Months Ended
Jun. 30, 2011
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies
Commitments and Contingencies


Legal Proceedings


Neither the Partnership nor PDC, in its capacity as the Managing General Partner of the Partnership, are party to any pending legal proceeding that PDC believes would have a materially adverse effect on the Partnership's business, financial condition, results of operations or liquidity.


Environmental


Due to the nature of the natural gas and crude oil industry, the Partnership is exposed to environmental risks. The Managing General Partner has various policies and procedures in place to avoid environmental contamination and mitigate the risks from environmental contamination. The Managing General Partner conducts periodic reviews to identify changes in the Partnership's environmental risk profile. Liabilities are accrued when environmental assessments and/or clean-ups are probable and the costs can be reasonably estimated. During the six months ended June 30, 2011, there were no new environmental remediation projects identified by the Managing General Partner for the Partnership. As of June 30, 2011 the Partnership has no accrued environmental liabilities. At December 31, 2010, the Partnership had accrued environmental remediation liabilities involving three Partnership wells in the amount of approximately $31,000, which is included in line item captioned “Accounts payable and accrued expenses” on the condensed Balance Sheets. The Managing General Partner is not currently aware of any environmental claims existing as of June 30, 2011, which have not been provided for or would otherwise have a material impact on the Partnership's condensed financial statements. However, there can be no assurance that current regulatory requirements will not change or unknown past non-compliance with environmental laws will not be discovered on the Partnership's properties.