Wednesday, November 22, 2006

Selling off oil and gas producing properties

Back in the late 1980's, I invested some money in Geodyne Energy Income Programs which produce regular income from the production of crude oil and natural gas. I sold most of the investment in the early 1990's, but got stuck with some fractional units which could not be sold easily or profitably. Every quarter my old UBS IRA earns a little cash from these investments. I just received the latest quarterly statement and see that the distribution amounts for three of the program partnerships are like an order of magnitude higher than the typical distribution. The notes say that this is because the Geodyne partnerships are now selling off some of their "interests" in various "producing properties," meaning oil and gas wells. This first batch of sales occurred at an auction in Houston at "The Oil and Gas Clearinghouse." According to the SEC filing, additional sales are expected at auctions in December and February. The SEC filing covers Geodyne Energy Income Limited Partnerships II-E, -F, -G, and -H. I have small investments in the first free.

The filing states an intent to "sell an increased amount of the Partnerships' properties as a result of the generally favorable current environment for oil and gas dispositions."

The big question mark is what fraction of wells were sold, how many wells are left, and whether the remaining wells are better-producing or lower-producing than those that were sold.

What I don't know is whether these auctions are a better deal for the limited partners in these programs or the purchasers. I suspect the latter, but I do not know, and I have no choice anyway.

I'll shift the proceeds into the Hartford Floating Rate Fund, a mutual fund simular to a money market fund which currently yields more than 6%. It's almost as good as a money market mutual fund, but has a 1% exit load (deferred sales charge). I'm not sure whether expenses are already taken out before the monthly distributions or at some other time. The prospectus says that the total annual operating expenses are 1.79%, so the question is whether that is taken out before or after the 6% number is calculated. I haven't had time to track this down yet. I've only had money in this fund since late September. It is also a very small amount of money.

-- Jack Krupansky

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