SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURTIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1994 Commission File No. 1-8876
ENSERCH EXPLORATION PARTNERS, LTD.
Incorporated - State of Texas I.R.S. Identification No. 75-2017566
1817 Wood Street, Dallas, Texas 75201
Registrant's telephone number, including Area Code: 214-748-1110
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such shorter
period that the Registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Number of Depositary Units evidenced by Depositary Receipts of the
Registrant outstanding as of August 10, 1994: 805,914.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENSERCH EXPLORATION PARTNERS, LTD.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------
1994 1993 1994 1993
-------- ------- ------ --------
(In thousands except per unit amounts)
Revenues
Natural gas. . . . . . . . . . . . . . . $35,533 $36,413 $77,631 $65,395
Oil and condensate . . . . . . . . . . . 7,525 9,100 14,580 18,232
Natural gas liquids. . . . . . . . . . . 315 1,383 720 2,480
Other. . . . . . . . . . . . . . . . . . 54 813 205 1,357
------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . 43,427 47,709 93,136 87,464
------- ------- ------- -------
Costs and Expenses
Operating expenses . . . . . . . . . . . 8,684 9,748 18,787 18,572
Revenue related taxes. . . . . . . . . . 1,365 2,586 3,646 4,655
Depreciation and amortization. . . . . . 19,611 19,714 40,049 36,591
General, administrative and other. . . . 5,075 6,501 10,840 13,368
------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . 34,735 38,549 73,322 73,186
------- ------- ------- -------
Operating Income. . . . . . . . . . . . . 8,692 9,160 19,814 14,278
Other Income - Net. . . . . . . . . . . . 17 2 17 4
Interest Expense. . . . . . . . . . . . . (3,524) (6,419) (9,729) (12,179)
------- ------- ------- -------
Net Income. . . . . . . . . . . . . . . . 5,185 2,743 10,102 2,103
Less 1% General Partners' Interest. . . . 52 27 101 21
------- ------- ------- -------
Income Applicable to
Limited Partners'Interest . . . . . . . $ 5,133 $ 2,716 $10,001 $ 2,082
======= ======= ======= =======
Net Income Per Unit . . . . . . . . . . . $ .05 $ .03 $ .10 $ .02
======= ======= ======= =======
Weighted Average Units Outstanding. . . . 102,500 102,500 102,500 102,500
======= ======= ======= =======
Distributions Declared Per Unit . . . . . $ $ .075 $ $ .15
======= ======= ======= =======
<FN>
See accompanying Notes.
ENSERCH EXPLORATION PARTNERS, LTD.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30
-----------------
1994 1993
------ -------
(In thousands)
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . $ 10,102 $ 2,103
Adjustments to reconcile net income
to net cash flows from operating activities -
Depreciation and amortization . . . . . . . . . . 40,049 36,591
Cash effect of changes in current operating
assets and liabilities. . . . . . . . . . . . . . 938 (3,970)
-------- -------
Net cash flows from operating
activities. . . . . . . . . . . . . . . . . . 51,089 34,724
-------- -------
INVESTING ACTIVITIES
Property, plant and equipment additions . . . . . . (57,407) (53,065)
Other . . . . . . . . . . . . . . . . . . . . . . . (13,131) (8,890)
-------- -------
Net cash flows used for investing
activities. . . . . . . . . . . . . . . . . . (70,538) (61,955)
-------- -------
Net cash flows used for operating and
investing activities. . . . . . . . . . . . (19,449) (27,231)
-------- -------
FINANCING ACTIVITIES
Change in temporary advances with affiliated
companies . . . . . . . . . . . . . . . . . . . . 45,341 15,379
Proceeds from long-term notes payable to
an affiliated company. . . . . . . . . . . . . . 8,000 16,000
Advances under leasing arrangements . . . . . . . . (25,950) 10,881
Cash distributions paid . . . . . . . . . . . . . . (7,765) (15,530)
-------- -------
Net cash flows from financing
activities . . . . . . . . . . . . . . . . . 19,626 26,730
-------- -------
Net Increase (Decrease) in Cash. . . . . . . . . . . 177 (501)
Cash at Beginning of Period. . . . . . . . . . . . . 309 937
-------- -------
Cash at End of Period. . . . . . . . . . . . . . . . $ 486 $ 436
======== =======
<FN>
See accompanying Notes.
ENSERCH EXPLORATION PARTNERS, LTD.
CONDENSED BALANCE SHEETS
(June 30, 1994 Unaudited)
June 30 December 31
1994 1993
------------------------
(In thousands)
ASSETS
Current Assets
Cash. . . . . . . . . . . . . . . . . . . . . . . $ 486 $ 309
Accounts receivable-trade . . . . . . . . . . . . 15,092 17,120
Accounts receivable-affiliated companies. . . . . 10,758 13,952
Materials and supplies, at average cost . . . . . 1,952 1,749
Other . . . . . . . . . . . . . . . . . . . . . . 1,158 272
---------- ----------
Total current assets . . . . . . . . . . . . . 29,446 33,402
---------- ----------
Property, Plant and Equipment (at cost)
Gas and oil properties (full-cost method) . . . . 1,883,137 1,803,581
Other . . . . . . . . . . . . . . . . . . . . . . 6,104 5,947
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . 1,889,241 1,809,528
Less accumulated depreciation and amortization. . 810,500 779,217
---------- ----------
Net property, plant and equipment. . . . . . . 1,078,741 1,030,311
---------- ----------
Other Assets . . . . . . . . . . . . . . . . . . . 18,063 22,590
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . $1,126,250 $1,086,303
========== ==========
LIABILITIES
Current Liabilities
Accounts payable-trade. . . . . . . . . . . . . . $ 54,047 $ 67,693
Accounts payable-affiliated companies . . . . . . 2,744 3,531
Temporary advances-affiliated companies . . . . . 72,557 27,216
Payables under leasing arrangements . . . . . . . 38,133 30,928
Distributions payable to unitholders. . . . . . . 7,765
Other . . . . . . . . . . . . . . . . . . . . . . 4,691 2,690
---------- ----------
Total current liabilities. . . . . . . . . . . 172,172 139,823
---------- ----------
Long-term Debt-Affiliated Company. . . . . . . . . 306,000 298,000
Deferred Royalties . . . . . . . . . . . . . . . . 26,033 28,554
Other Liabilities. . . . . . . . . . . . . . . . . 1,706 9,689
Partners' Capital. . . . . . . . . . . . . . . . . 620,339 610,237
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . $1,126,250 $1,086,303
<FN> ========== ==========
See accompanying Notes.
ENSERCH EXPLORATION PARTNERS, LTD.
Notes to Condensed Financial Statements
1. Enserch Exploration Partners, Ltd. issued a 5-year promissory note for $8
million payable to an affiliate of ENSERCH Corporation on January 3, 1994.
Proceeds from the note were used to fund the January 3, 1994 cash
distribution.
2. In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair statement of the results of
operations for the interim periods included herein have been made.
INDEPENDENT ACCOUNTANTS' REPORT
Enserch Exploration Partners, Ltd.:
We have reviewed the accompanying condensed balance sheet of Enserch
Exploration Partners, Ltd., as of June 30, 1994, and the related condensed
statements of income for the three months and six months ended June 30, 1994
and 1993, and condensed statements of cash flows for the six months ended
June 30, 1994 and 1993. These financial statements are the responsibility of
the Partnership's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Enserch Exploration Partners, Ltd., as of
December 31, 1993, and the related statements of income, cash flows and
changes in partners' capital for the year then ended (not presented herein);
and in our report dated February 7, 1994, we expressed an unqualified opinion
on those financial statements. In our opinion, the information set forth in
the accompanying condensed balance sheet as of December 31, 1993, is fairly
stated in all material respects, in relation to the balance sheet from which
it has been derived.
DELOITTE & TOUCHE
Dallas, Texas
July 29, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
QUARTERS ENDED JUNE 30, 1994 AND 1993
EP had second-quarter 1994 net income of $5.2 million, nearly double the
net income of $2.7 million for the same period a year earlier, reflecting
lower operating expenses and reduced interest expense. Operating income for
the second quarter of 1994 was $8.7 million, compared with $9.2 million for
the like period a year ago. Second-quarter revenues of $43 million were 9%
lower than the year-ago period.
Natural-gas revenues of $36 million were 2% lower than the second quarter
of 1993. Natural-gas sales volumes were 16.9 billion cubic feet (Bcf),
compared with 17.6 Bcf for the year-earlier quarter, with the average sales
price of $2.11 per thousand cubic feet (Mcf) up 2% from $2.07 per Mcf a year
ago. Oil revenues of $7.5 million were 17% below the second quarter of 1993.
Oil sales volumes of 487 thousand barrels were slightly lower than the year-
earlier period, and the average price per barrel of oil declined to $15.45
from $18.31, a 16% decrease.
Costs and expenses for the second quarter of 1994 of $35 million were 10%
lower than the year-earlier period. The decrease in expenses reflects a
$2.0 million net credit associated with litigation settlements. Depreciation
and amortization expense for the second quarter decreased slightly from the
1993 period, with lower levels of production more than offsetting the effects
of higher-per-unit amortization of capitalized costs. Average production cost
per million British thermal units (MMBtu) for the quarter decreased to $.48
in 1994 from $.52 in 1993 due to lower operating expenses. The overall rate
of amortization for the second quarter of 1994 was $.94 per MMBtu produced,
up from $.90 for the year-earlier period.
Interest expense for the second quarter of 1994 of $3.5 million was
$2.9 million less than the same period a year ago, principally due to the
refinancing in the second quarter of 1994 of $306 million of outstanding notes
due to an affiliated company at a lower interest rate.
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
For the first six months of 1994, EP's net income was $10 million,
compared with $2.1 million for the same period a year ago, reflecting
significantly improved prices and sales volumes for natural gas and lower
interest expense. Six-month operating income was $20 million versus
$14 million for the first six months of 1993. Year-to-date revenues were up
6% from the year ago period. Natural-gas revenues rose 19%, with a 10%
improvement in the average sales price and an 8% increase in sales volumes.
Oil revenues were down 20% principally due to lower prices. Costs and
expenses for the first six months were virtually the same as the year-earlier
period, with higher depreciation and amortization expense virtually offset by
decreases in other expense categories. The increase in depreciation and
amortization expense was due to both a higher level of production and a
higher-per-unit amortization rate.
At June 30, 1994, the discounted value of EP's gas and oil reserves, as
determined by the method prescribed by the Securities and Exchange Commission,
exceeded the net capitalized cost of gas and oil properties by approximately
$50 million, based on average prices and contracts in effect in June 1994.
Product prices are subject to seasonal and other fluctuations.
CAPITAL RESOURCES AND LIQUIDITY
Net cash flows from operating activities for the first six months of 1994
were $51 million, up 47% from $35 million a year earlier. Investing
activities required net cash flows of $71 million, compared with $62 million
for the first six months last year, with property additions up $4 million from
the prior year. For the first six months of 1994, net cash of $19 million was
required for investing activities after cash provided by operations. In
addition, there was an $8 million requirement for distributions to unitholders
and disbursements for the Garden Banks facilities under construction exceeded
advances under leasing arrangements by $26 million. These requirements were
provided by an increase in borrowings from affiliated companies.
Planned property, plant and equipment additions for 1994 total
$114 million. In addition, construction of the offshore platform and related
facilities associated with EP's interest in the Garden Banks Block 388
development project in the Gulf of Mexico is being financed through an
operating lease arrangement. The lease on the Mississippi Canyon Block 441
platform and related production facilities was renewed in the second quarter
of 1994 under terms that resulted in capital lease accounting treatment.
On January 3, 1994, EP paid a quarterly distribution of $.075 per unit.
In February 1994, EP announced that the quarterly distributions to unitholders
had been indefinitely suspended.
ENSERCH recently announced that its subsidiary serving as the managing
general partner of Enserch Exploration Partners, Ltd. intends to convert the
partnership to a publicly traded corporation. ENSERCH owns 99.2% of the
outstanding units of the partnership, which conducts almost all of the natural
gas and oil exploration and production activities of ENSERCH. ENSERCH intends
to increase the level of minority ownership in the new corporation enabling
the public market to value directly and more effectively the gas and oil
assets currently owned by the partnership. ENSERCH believes the corporate
structure will provide a greater opportunity for asset growth through
acquisition of proved gas and oil reserves and development of new properties,
because the conversion will facilitate additional shares being placed in the
public market, either through acquisitions or public offerings. Additional
details about the restructuring will be announced at the time the appropriate
documents are filed with the Securities and Exchange Commission.
DRILLING PROGRAM
The Garden Banks Block 388 project in the Gulf of Mexico remains on
schedule, with initial production anticipated in mid-1995. Completion of
three predrilled wells (two oil and one gas condensate) will commence as soon
as the floating facility is on location. These operations should be completed
by the end of 1995, followed by the drilling of new development wells.
Initial daily oil production rates from each predrilled oil well should be
between 2,500 and 5,000 barrels of oil. Total peak daily production is
expected to be 40 thousand barrels of oil and 60 million cubic feet of gas.
In July, the tow out and placement of the subsea drilling and production
template was completed. Also in July, EP completed an agreement with Mobil
Corporation under which Mobil has conducted an additional three-dimensional
seismic survey over the unit and is participating in an exploratory well
currently drilling on Garden Banks Block 387, which was spudded in August.
Mobil has an option to acquire, for additional consideration, a 40% interest
in the Garden Banks unit and in the production system. EP, which currently
owns 100% of the project, will remain the project operator.
Also in the Gulf, a successful delineation well on Green Canyon Block 254
offshore Louisiana was drilled, which encountered more than 400 feet of net
oil and gas pay below 12,000 feet. The delineation well is an appraisal well
to a discovery drilled in 1991 that encountered multiple sands with a combined
thickness of more than 300 feet of net oil pay. EP has a 25% working interest
in prior work in the project and assumed a 100% working interest and operation
of the sidetrack well.
ENSERCH EXPLORATION PARTNERS, LTD.
SUMMARY OF OPERATING DATA (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
1994 1993 1994 1993
------- -------- -------- -------
Operating Income (in millions) . . . . . . $ 8.7 $ 9.2 $ 19.8 $ 14.3
======= ======= ======= =======
Revenues (in millions)
Natural gas . . . . . . . . . . . . . . . $ 35.5 $ 36.4 $ 77.6 $ 65.4
Oil and condensate . . . . . . . . . . . . 7.5 9.1 14.6 18.2
Natural gas liquids. . . . . . . . . . . . .3 1.4 .7 2.5
Other . . . . . . . . . . . . . . . . . . .1 .8 .2 1.4
------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . . $ 43.4 $ 47.7 $ 93.1 $ 87.5
======= ======= ======= =======
Sales Volumes
Natural gas (MMcf) . . . . . . . . . . . . 16,866 17,618 35,049 32,517
Oil and condensate (MBbl). . . . . . . . . 487 497 962 989
Natural gas liquids (MBbl) . . . . . . . . 30 108 71 190
Average Sales Price
Natural gas (per Mcf). . . . . . . . . . . $ 2.11 $ 2.07 $ 2.21 $ 2.01
Oil and condensate (per Bbl) . . . . . . . 15.45 18.31 15.16 18.43
Natural gas liquids (per Bbl). . . . . . . 10.50 12.81 10.14 13.05
Net Wells
Drilled. . . . . . . . . . . . . . . . . . 19 26 35 42
Productive . . . . . . . . . . . . . . . . 13 22 21 36
Data in Equivalent Energy Content (MMBtu)(1)
Average sales price. . . . . . . . . . . . $ 2.11 $ 2.16 $ 2.19 $ 2.13
Average production costs . . . . . . . . . .48 .52 .50 .55
Amortization costs . . . . . . . . . . . . .94 .90 .93 .89
<FN>
(1) For purposes of providing a common unit of measure, natural gas, oil
and natural gas liquids are converted to an approximate equivalent
unit on the basis of relative energy content: one Mcf of natural gas
equals 1.05 million British thermal units ("MMBtu"), one barrel of oil
equals 5.6 MMBtu and one barrel of natural gas liquids equals 4.2
MMBtu.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) No reports were filed on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSERCH EXPLORATION PARTNERS, LTD.
(Registrant)
By Enserch Exploration, Inc.
Managing General Partner
Dated August 11, 1994 By /s/Gary J. Junco
----------------------------------------
Gary J. Junco
President and Chief Operating Officer
Dated August 11, 1994 By /s/J. W. Pinkerton
----------------------------------------
J. W. Pinkerton
Vice President and Controller