UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
MARK ONE
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-8921
HALLWOOD ENERGY PARTNERS, L. P.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0987088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4582 SOUTH ULSTER STREET PARKWAY
SUITE 1700
DENVER, COLORADO 80237
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 850-7373
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 12 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
The registrant is a limited partnership and issues Units (representing ownership
of limited partner interests).
Number of Units outstanding as of May 11, 1995 8,818,558
Number of Class B Subordinated Units outstanding as of May 11 1995 143,773
HALLWOOD ENERGY PARTNERS, L. P.
CONSOLIDATED BALANCE SHEETS
(In thousands except Units)
March 31, December 31,
1995 1994
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 9,330 $ 2,409
Accounts receivable:
Oil and gas sales 5,071 6,220
Trade 3,780 3,042
Due from affiliates 1,647
Net working capital of affiliate 640
Prepaid expenses and other current assets 1,355 1,352
------- -------
Total 20,176 14,670
------- -------
PROPERTY, PLANT AND EQUIPMENT, at cost
Oil and gas properties (full cost method):
Proved mineral interests 591,672 588,758
Unproved mineral interests - domestic 489 380
Unproved mineral interests - foreign 2,399
Furniture, fixtures and other 2,990 2,980
------- -------
Total 595,151 594,517
Less accumulated depreciation, depletion,
amortization and property impairment (491,126) (487,103)
------- -------
Net Property, Plant and Equipment 104,025 107,414
------- -------
OTHER ASSETS
Investment in common stock of HCRC 12,917 13,764
Deferred expenses and other assets 383 433
------ -------
Total 13,300 14,197
------ -------
TOTAL ASSETS $137,501 $136,281
======= =======
HALLWOOD ENERGY PARTNERS, L. P.
CONSOLIDATED BALANCE SHEETS
(In thousands except Units)
(Continued)
March 31, December 31,
1995 1994
(Unaudited)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 18,414 $ 19,181
Due to affiliates 1,003
Net working capital deficit of affiliate 103
Current portion of contract settlement 1,452 1,425
Current portion of long-term debt 95 4,125
------- -------
Total 20,964 24,834
------- -------
NONCURRENT LIABILITIES
Long-term debt 36,906 25,898
Contract settlement 2,388 2,666
Deferred liability 1,059 1,157
Long-term debt of affiliate 1,509
------- -------
Total 41,862 29,721
------- -------
Total Liabilities 62,826 54,555
------- -------
MINORITY INTEREST IN SUBSIDIARIES 2,895 2,923
------- -------
PARTNERS' CAPITAL
Units - 8,818,558 Units issued, 8,500,808
outstanding 70,785 77,342
Class B Subordinated Units - 143,773 Units
outstanding 1,240 1,350
General Partner 3,695 4,051
Treasury Units - 317,750 Units (3,940) (3,940)
------- -------
Total Partners' Capital 71,780 78,803
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $137,501 $136,281
======= =======
HALLWOOD ENERGY PARTNERS, L. P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except Units)
For the Three Months
Ended March 31,
1995 1994
REVENUES:
Oil revenue $ 3,943 $ 3,443
Gas revenue 5,560 7,679
Pipeline, facilities and other 520 485
Interest 86 106
------- -------
10,109 11,713
------- -------
EXPENSES:
Production operating 2,687 2,752
Facilities operating 223 184
General and administrative 1,491 1,265
Depreciation, depletion and amortization 3,972 4,713
Impairment of oil and gas properties 4,051
Interest 993 1,034
------- -------
13,417 9,948
------- -------
OTHER EXPENSES:
Equity in loss of HCRC 847 149
Minority interest in net income of subsidiaries 287 700
Litigation settlement 110
------- -------
1,244 849
------- -------
NET INCOME (LOSS) $ (4,552) $ 916
====== ======
ALLOCATION OF NET INCOME (LOSS):
General partner $ 201 $ 588
====== ======
Limited partners $ (4,753) $ 328
====== ======
Per Unit and Class B Unit $ (.55) $ .04
====== ======
Weighted average Units and Class B
Units outstanding 8,644 8,649
====== ======
HALLWOOD ENERGY PARTNERS, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months
Ended March 31,
1995 1994
OPERATING ACTIVITIES: $ (4,552) $ 916
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flow
provided by operating activities: 8,023 4,713
Depreciation, depletion, amortization and impairment 51 87
Depreciation charged to affiliates
Amortization of deferred loan costs 50 65
and other assets 82 106
Noncash interest expense 847 149
Equity in loss of HCRC 287 700
Minority interest in net income (66) 58
Undistributed (earnings) loss of affiliates (40) (112)
Recoupment of take-or-pay liability ------- ------
Cash provided by operations before working
capital changes 4,682 6,682
Changes in operating assets and liabilities provided
(used) cash net of noncash activity:
Oil and gas sales receivable 1,149 1,936
Trade receivable (738) 983
Due from affiliates 1,647 (45)
Prepaid expenses and other current assets (3) 1,226
Accounts payable and accrued liabilities (767) (6,118)
Due to affiliates 1,003
------ ------
Net cash provided by operating activities 6,973 4,664
------ ------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (573) (1,001)
Exploration and development costs incurred (3,460) (1,513)
Proceeds from sales of property, plant and equipment 181 9
Other investing activities (70)
------- -------
Net cash used in investing activities (3,852) (2,575)
------ -------
FINANCING ACTIVITIES:
Payments of long-term debt (3,022) (22)
Proceeds from long-term debt 10,000
Distributions paid (2,448) (2,432)
Distributions paid by consolidated subsidiaries
to minority shareholders (315) (824)
Payments of contract settlement (333) (233)
Syndication costs and capital contributions (23) (22)
Other financing activities (59)
------ ------
Net cash provided by (used in) financing activities 3,800 (3,533)
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,921 (1,444)
CASH AND CASH EQUIVALENTS:
BEGINNING OF PERIOD 2,409 13,139
------ ------
END OF PERIOD $ 9,330 $ 11,695
======= =======
<F1>
The accompanying notes are an integral part
of the financial statements.
HALLWOOD ENERGY PARTNERS, L. P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
Hallwood Energy Partners, L. P. ("HEP") is a publicly traded Delaware limited
partnership engaged in the development, production, sale and transportation of
oil and gas and in the acquisition, exploration, development and operation of
oil and gas properties. The principal objectives of HEP are to maintain and to
expand its reserve base and to provide cash distributions to holders of its
units representing limited partner interests ("Units"). The general partner of
HEP is Hallwood Energy Corporation ("HEC") which has been engaged in oil and gas
exploration and development since its incorporation in 1968.
The activities of HEP are conducted through HEP Operating Partners, L. P.
("HEPO") and EDP Operating, Ltd. ("EDPO"). HEP is the sole limited partner and
HEC is the sole general partner of HEPO. Hallwood G. P., Inc. ("HGPI"), a
wholly-owned subsidiary of HEC, is the sole general partner, and HEP is the sole
limited partner of EDPO. Solely for purposes of simplicity herein, unless
otherwise indicated, all references to HEP in connection with the ownership,
exploration, development or production of oil and gas properties include HEPO
and EDPO.
The interim financial data are unaudited; however, in the opinion of the general
partner, the interim data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. These financial statements should be read in conjunction with
the financial statements and accompanying footnotes included in HEP's December
31, 1994 Annual Report on Form 10-K.
ACCOUNTING POLICIES
CONSOLIDATION
HEP fully consolidates majority owned entities and reflects a minority interest
in the consolidated financial statements. HEP accounts for its interest in 50%
or less owned affiliated oil and gas partnerships and limited liability
companies using the proportionate consolidation method of accounting. HEP's
investment in approximately 40% of the common stock of its affiliate, Hallwood
Consolidated Resources Corporation ("HCRC"), is accounted for under the equity
method.
The accompanying financial statements include the activities of HEP, its
subsidiaries Hallwood Petroleum, Inc. ("HPI") and Hallwood Oil and Gas, Inc.
("Hallwood Oil") and majority owned affiliates, the May Limited Partnerships
1983-1, 1983-2, 1983-3, 1984-1, 1984-2, 1984-3 ("Mays").
TREASURY STOCK
HEP owns approximately 40% of the outstanding common stock of HCRC, which owns
approximately 9% of HEP's Units; consequently, HEP has an interest in 317,750 of
its own Units. These Units are treated as treasury units in the accompanying
financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior period's amounts to
conform to the classifications used in the current period.
NOTE 2 - DEBT
During the first quarter, HEP and its lenders amended and restated HEP's Amended
and Restated Credit Agreement ("Credit Agreement") to extend the term date of
its line of credit to May 31, 1997. Under the Credit Agreement and an Amended
and Restated Note Purchase Agreement ("Note Purchase Agreement") (collectively
referred to as the "Credit Facilities") HEP has a borrowing base of $42,000,000.
HEP has amounts outstanding at March 31, 1995 of $19,700,000 under the Credit
Agreement and $17,143,000 under the Note Purchase Agreement. HEP's borrowing
base is further reduced by the outstanding contract settlement debt of
$3,840,000 and capital lease obligations of $158,000. On April 28, 1995, HEP
borrowed an additional $2,000,000 under the Credit Agreement and paid down
borrowings under the Note Purchase Agreement by $4,286,000; therefore, its
unused borrowing base, totaled $3,445,000, at May 11, 1995.
Borrowings under the Note Purchase Agreement bear interest at an annual rate of
11.85%, which is payable quarterly. Annual principal payments of $4,286,000
began April 30, 1992, and the debt is required to be paid in full on April 30,
1998. HEP funded the payment due in April 1995 through additional borrowings
under the Credit Agreement; thus, no portion of HEP's Note Purchase Agreement is
classified as current as of March 31, 1995.
Borrowings against the Credit Agreement bear interest at the lower of the
Certificate of Deposit rate plus 1.875%, prime plus 1/2% or the Euro-Dollar rate
plus 1.75% (7.87% at March 31, 1995). Interest is payable monthly, and
quarterly principal payments of $1,356,000, as adjusted for the borrowings
during April 1995, commence May 31, 1997.
The borrowing base for the Credit Facilities is redetermined semiannually in
March and September of each year. The Credit Facilities are secured by a first
lien on approximately 80% in value of HEP's oil and gas properties.
Additionally, aggregate distributions paid by HEP in any 12 month period are
limited to 50% of cash flow from operations before working capital changes and
distributions received from affiliates.
The current portion of long-term debt represents a current capital lease
obligation of $95,000.
NOTE 3 - STATEMENT OF CASH FLOWS
Cash paid for interest during the three months ended March 31, 1995 and 1994 was
$825,000 and $863,000, respectively.
NOTE 4 - LEGAL PROCEEDINGS
On April 21, 1995, the United States District Court for the Southern District of
New York entered an order provisionally certifying the class and preliminarily
approving the settlement of In Re: Hallwood Energy Partners, L. P. Securities
Litigation, 90 Civ. 1555. The class is composed of all persons and entities who
beneficially owned or held units of Energy Development Partners, Ltd. ("EDP") on
May 9, 1990 and who exchanged, or were eligible to exchange, their EDP units for
HEP Units pursuant to the merger of EDP into HEP (the "Transaction"). The order
directs plaintiffs' counsel to mail to class members notice of the settlement.
The final hearing approving the settlement will be held on August 10, 1995.
Under the terms of the settlement, HEP will make a cash payment of approximately
$2,870,000, which was recorded as an expense in HEP's 1994 financial statements
as the estimated cost associated with the litigation. In addition, in
connection with plaintiffs' allegation that they did not receive adequate
compensation for their EDP Units at the time of the Transaction, HEP will issue
Units having a market value of $5,330,000. When issued, these Units, which are
presently estimated to total approximately 970,000, will be treated, for
financial statement purposes only, as additional Units issued in connection with
the Transaction, which was accounted for as a reorganization of entities under
common control, in a manner similar to a pooling of interests, and will be
reflected as outstanding Units since May 9, 1990, the date of the Transaction.
As a result, after the Units are issued, the number of Units outstanding and the
net income (loss) per Unit will be retroactively restated for all periods
subsequent to the Transaction. An affiliate of the Hallwood defendants may
choose to purchase all of the Units for $5,330,000. The net proceeds of the
settlement will be distributed to the class after all time periods for an appeal
of the settlement order have expired. HEP anticipates that the distribution
will occur in late September or October 1995.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
HEP generated $6,973,000 of cash flow from operating activities during the first
three months of 1995.
The other primary cash inflows were:
. $10,000,000 in proceeds from long-term debt
. $181,000 in proceeds from the sale of property
Cash was used primarily for:
. Payments of long-term debt of $3,022,000
. Additions to property and development costs incurred of $4,033,000
. Distributions to Unitholders of $2,448,000
. Payments of contract settlement of $333,000
When combined with miscellaneous other cash activity during the period, the
result was an increase of $6,921,000 in HEP's cash from $2,409,000 at December
31, 1994 to $9,330,000 at March 31, 1995.
DEVELOPMENT PROJECTS AND ACQUISITIONS
Through March 31, 1995, HEP has incurred approximately $4,033,000 directly and
$1,081,000 indirectly through its investment in Hallwood Spraberry Drilling
Company, L.L.C. ("HSD") for exploration, development and acquisition costs
toward the 1995 capital budget of $15,800,000 of which $11,600,000 is for direct
expenditures and the remainder for HSD expenditures. The direct expenditures
were comprised of approximately $1,782,000 for HEP's Indonesian project as
further discussed below, approximately $1,678,000 for domestic exploration and
development expenditures and approximately $573,000 for property acquisitions
and land. The indirect expenditures were comprised of drilling costs. A
description of significant exploration and development projects to date in 1995
follows.
Through HEP's investment in HSD, approximately $1,081,000, net to HEP's
interest, has been incurred through March 31, 1995 for five drilled wells and
nine recompletions on the Rocker "b" Ranch in Reagan County, Texas. HSD has its
own line of credit of $4,000,000 net to HEP's interest, provided by a third
party lender. The line of credit is secured only by certain leases on the
Rocker "b" Ranch and is otherwise nonrecourse to HEP. HSD plans to drill up to
32 wells and to recomplete the same number of wells through July 1996. Based on
the initial success of the drilling and recompletions, HEP acquired substantial
additional acreage in the Rocker "b" Ranch during the second quarter and HSD
plans to expand its project area to include this acreage. HSD has two drilling
rigs under contract in the area and plans to place a third under contract in the
second quarter of 1995. Discussions are underway with other operators in the
area regarding development of new acreage.
Significant exploration and development expenditures through March 31, 1995
include approximately $390,000 on four successful drilling wells and three
successful recompletions in the West Texas Kermit area and approximately
$300,000 on one development well in Reagan County, Texas. Gross production on
these properties has increased by 535 barrels of oil per day and 780 mcf per
day. HEP intends to participate in several more workovers and drilling wells in
this area in 1995. Future projects include secondary recovery in the San Andres
and Holt Formations. HEP has 25% to 35% working interests in the Kermit area
wells and to 90% working interest in the Reagan County well.
In April of 1995, a workover was performed on the G.S. Boudreaux in Lafayette
Parish, Louisiana, whereby gross production rates were increased from 17,500 mcf
per day and 370 barrels of condensate per day to 24,600 mcf per day and 550
barrels of condensate per day during the second quarter of 1995. Present
production is limited by surface facilities, and additional planned facility
work is anticipated to further increase production. HEP has a 30% working
interest in the well. The increased production rate on the G.S. Boudreaux will
significantly increase the state administered production allowable for the A.L.
Boudreaux in the same area, resulting in production increases from that well.
In Richland County, Montana, the Lewis #1, was recompleted to the Interlake
Formation for a gross flowing rate of 450 barrels of oil per day and 250 mcf per
day initial potential. A development well to further exploit this deposit is
planned for 1995. HEP has a 22% working interest in the area.
Through March 31, 1995, HEP has spent approximately $230,000 to date on a
program started in late 1994 in Lea County, New Mexico. The program included
five successful non-operated development wells and one successful recompletion
having gross combined initial flowing rates of 2,389 barrels of oil per day and
3,023 mcf per day. HEP has a 5% working interest in the field.
HEP is currently completing an exploratory well in Wyoming for which $85,000 has
been incurred during the first quarter of 1995. A gross flowing potential of
750 barrels of oil per day and 150 mcf per day has been recorded, and a
delineation well is planned for the summer of 1995. HEP has a 17% working
interest in the field.
During the first quarter of 1995, HEP also acquired acreage in Texas, Louisiana,
Michigan, Wyoming and Montana for approximately $90,000, as well as working
interests in the San Juan Basin of New Mexico and Reagan County, Texas for
approximately $120,000. Numerous other projects are also underway in Montana,
Colorado, Utah and Kansas.
During the first quarter of 1995, Hallwood Petroleum Indonesia, Inc. ("Hallwood
Indonesia") completed and evaluated its first well, PTH-01, in the Telaga Said
Field in North Sumatra, Indonesia. A 39 barrel per day oil test was obtained,
but insufficient reserves were indicated to justify field development costs.
Consequently, Hallwood Indonesia has decided to relinquish its interest in the
contract area and is in the process of closing down its operations there. HEP
has recorded $4,051,000 of impairment expense in the first quarter of 1995,
which represents the write-off of its entire investment in Hallwood Indonesia.
DISTRIBUTIONS
HEP paid a $.20 per Unit distribution on February 15, 1995 and has declared a
$.20 per Unit distribution payable on May 15, 1995 to Unitholders of record on
March 31, 1995. HEP will continue to evaluate its cash flow from operations on
a quarterly basis and will determine each quarter's distribution accordingly.
FINANCING
During the first quarter, HEP and its lenders amended and restated HEP's Amended
and Restated Credit Agreement (the "Credit Agreement") to extend the term date
of its line of credit to May 31, 1997. Under the Credit Agreement and an
Amended and Restated Note Purchase Agreement ("Note Purchase Agreement")
(collectively referred to as the "Credit Facilities") HEP has a borrowing base
of $42,000,000. HEP has amounts outstanding at March 31, 1995 of $19,700,000
under the Credit Agreement and $17,143,000 under the Note Purchase Agreement.
HEP's borrowing base is further reduced by the outstanding contract settlement
debt of $3,840,000 and capital lease obligations of $158,000. On April 28,
1995, HEP borrowed an additional $2,000,000 under the Credit Agreement and paid
down borrowings under the Note Purchase Agreement by $4,286,000; therefore, its
unused borrowing base totaled $3,445,000, at May 11, 1995.
Borrowings under the Note Purchase Agreement bear interest at an annual rate of
11.85%, which is payable quarterly. Annual principal payments of $4,286,000
began April 30, 1992, and the debt is required to be paid in full on April 30,
1998. HEP funded the payment due in April 1995 through additional borrowings
under the Credit Agreement; thus, no portion of HEP's Note Purchase Agreement is
classified as current as of March 31, 1995.
Borrowings against the Credit Agreement bear interest at the lower of the
Certificate of Deposit rate plus 1.875%, prime plus 1/2% or the Euro-Dollar rate
plus 1.75% (7.87% at March 31, 1995). Interest is payable monthly, and
quarterly principal payments of $1,356,000 as adjusted for the borrowings during
April 1995, commence March 31, 1997.
The borrowing base for the Credit Facilities is redetermined semiannually in
March and September of each year. The Credit Facilities are secured by a first
lien on approximately 80% in value of HEP's oil and gas properties.
Additionally, aggregate distributions paid by HEP in any 12 month period are
limited to 50% of cash flow from operations before working capital changes and
distributions received from affiliates.
The current portion of long-term debt represents a current capital lease
obligation of $95,000.
INFLATION AND CHANGING PRICES
PRICES
Prices obtained for oil and gas production depend upon numerous factors that are
beyond the control of HEP, including the extent of domestic and foreign
production, imports of foreign oil, market demand, domestic and worldwide
economic and political conditions, and government regulations and tax laws.
Prices for both oil and gas fluctuated significantly throughout 1994 and through
the first quarter of 1995. The following table presents the average prices
received each quarter by HEP and the effects of the hedging transactions
discussed below.
Oil Oil Gas Gas
(excluding the (including the (excluding the (including the
effects of effects of effects of effects of
hedging hedging hedging hedging
transactions) transactions) transactions) transactions)
(bbl) (bbl) (mcf) (mcf)
First quarter - 1994 $12.82 $14.59 $ 2.22 $ 2.13
Second quarter - 1994 16.03 16.84 1.90 1.94
Third quarter - 1994 17.08 17.58 1.81 1.95
Fourth quarter - 1994 16.05 16.89 1.65 1.84
First quarter - 1995 16.79 17.22 1.51 1.81
HEP has entered into numerous financial contracts to hedge the price of its oil
and natural gas. The purpose of the hedges is to provide protection against
price drops and to provide a measure of stability in the volatile environment of
oil and natural gas spot pricing. In general, it is HEP's goal to hedge 50% of
its oil and gas production for each of the next two years and 30% for each of
the three years thereafter. The revenue associated with these contracts is
recognized as oil or gas revenue at the time the hedged volumes are sold.
The following table provides a summary of HEP's outstanding financial contracts:
Oil
Percent of Production Contract
Period Hedged Floor Price
(per bbl)
Last nine months of 1995 47% $16.94
1996 25% $15.00
1997 20% $14.83
1998 15% $14.89
1999 3% $15.13
Between 20% and 100% of the oil volumes hedged in each year are subject to a
participating hedge whereby HEP will receive the contract price if the posted
futures price is lower than the contract price, and will receive the contract
price plus between 25% and 75% of the difference between the contract price and
the posted futures price if the posted futures price is greater than the
contract price. Between 25% and 100% of the volumes hedged in each year are
subject to a collar agreement whereby HEP will receive the contract price if the
spot price is lower than the contract price, the cap price if the spot price is
higher than the cap price, and the spot price if that price is between the
contract price and the cap price. The cap prices range from $16.25 to $18.60.
Gas
Percent of Production Contract
Period Hedged Floor Price
(per mcf)
Last nine months of 1995 58% $2.04
1996 29% 2.05
1997 32% 1.95
1998 32% 2.00
1999 4% 1.49
Between 28% and 68% of the gas volumes hedged in each year are subject to a
collar agreement whereby HEP will receive the contract price if the spot price
is lower than the contract price, the cap price if the spot price is higher than
the cap price, and the spot price if that price is between the contract price
and the cap price. The cap prices range from $2.50 to $2.81.
During the second quarter through May 11, 1995, the oil price (for barrels not
hedged) averaged between $17.50 and $18.25 per barrel. The weighted average
price of natural gas (for mcf not hedged) was between $1.45 and $1.70 per mcf.
INFLATION
Inflation did not have a material impact on HEP in 1994 and is not anticipated
to have a material impact in 1995.
RESULTS OF OPERATIONS
The following table is presented to contrast HEP's average oil and gas prices
and production. Significant fluctuations are discussed in the accompanying
narrative.
OIL AND GAS PRICES AND PRODUCTION
(In thousands except for price)
For the Three Months Ended March 31,
1995 1994
Oil Gas Oil Gas
(bbl) (mcf) (bbl) (mcf)
Average price $17.22 $1.81 $14.59 $2.13
Production 229 3,072 236 3,600
FIRST QUARTER 1995 COMPARED TO FIRST QUARTER 1994
OIL REVENUE
Oil revenue increased by $500,000, or 15%, during the first quarter of 1995 as
compared with the first quarter of 1994. The increase is the result of an
increase in the average oil price from $14.59 per barrel in 1994 to $17.22 per
barrel in 1995 partially offset by a decrease in oil production from 236,000
barrels in 1994 to 229,000 barrels in 1995. The decrease in oil production is
due to normal production declines which were partially offset by increased
production from developmental drilling projects in West Texas.
The effect of HEP's hedging transactions, as described under "Inflation and
Changing Prices," was to increase HEP's average oil price from $16.79 per barrel
to $17.22 per barrel, representing $98,000 in additional revenue from hedging
transactions.
GAS REVENUE
Gas revenue decreased by $2,119,000 during the first quarter of 1995 as compared
with the first quarter of 1994. The decrease is the result of a decrease in
production from 3,600,000 mcf in 1994 to 3,072,000 mcf in 1995, combined with a
15% decrease in price from $2.13 per mcf in 1994 to $1.81 per mcf in 1995. The
decrease in production is due to allowable production limits and normal
production declines.
The effect of HEP's hedging transactions was to increase HEP's average gas price
from $1.51 per mcf to $1.81 per mcf, representing $922,000 in additional revenue
from hedging transactions.
PIPELINE, FACILITIES AND OTHER
Pipeline, facilities and other revenue consists primarily of facilities income
from two gathering systems located in New Mexico, revenues derived from salt
water disposal, and incentive payments related to the sale of a term working
interest in certain wells in San Juan County. Pipeline, facilities and other
income increased by $35,000 during the first quarter of 1995 as compared with
the first quarter of 1994, primarily as a result of incentive payments received
during the first quarter of 1995.
INTEREST INCOME
The decrease in interest income of $20,000 during the first quarter of 1995 as
compared with the first quarter of 1994 resulted from a lower average cash
balance during the first quarter of 1995 as compared with the same period during
1994.
PRODUCTION OPERATING EXPENSE
Production operating expense decreased $65,000 during the first quarter of 1995
as compared with the first quarter of 1994, primarily as a result of property
sales.
FACILITIES OPERATING EXPENSE
Facilities operating expense represents the costs of operating and maintaining
two gathering systems located in New Mexico. Costs increased by $39,000 during
1995 as compared with 1994 due to the connection of additional wells to the
gathering systems.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense includes costs incurred for direct
administrative services such as legal, audit and reserve reports, as well as
allocated internal overhead incurred by the operating company on behalf of HEP.
These expenses increased $226,000 during the first quarter of 1995 as compared
with the first quarter of 1994. This increase is primarily the result of bank
fees associated with the extension of HEP's line of credit during the first
quarter of 1995.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
Depreciation, depletion and amortization expense decreased $741,000 during the
first quarter of 1995 as compared with the first quarter of 1994. The decrease
is primarily the result of lower capitalized costs in 1995 as compared with 1994
due to the property impairment recorded during the fourth quarter of 1994.
IMPAIRMENT OF OIL AND GAS PROPERTIES
Impairment of oil and gas properties represents the write-off of HEP's
Indonesian operations.
INTEREST EXPENSE
Interest expense decreased by $41,000 during the first quarter of 1995 as
compared with the first quarter of 1994, primarily as the result of a lower
average debt balance in the first quarter of 1995 as compared with the first
quarter of 1994, partially offset by higher interest rates.
EQUITY IN LOSS OF HCRC
Equity in loss of affiliate represents HEP's share of its equity investment in
HCRC. HEP's equity in loss increased $698,000 during the first quarter of 1995
as compared with the first quarter of 1994. The increase is primarily due to
HCRC's impairment expense resulting from the write-off of its Indonesian
operations.
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES
Minority interest in net income of subsidiaries represents unaffiliated
partners' interest in the net income of the May Partnerships. The decrease is
due to a decline in the net income of the May Partnerships resulting from
decreased production on their properties.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Item 8 - Note 14 of Form 10-K for the year ended
December 31, 1994 and Item 1 - Note 4 of Form 10-Q for the quarter
ended March 31, 1995.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - REPORTS ON FORM 8-K
None.
ITEM 7 - EXHIBITS
10.3 Second Amended and Restated Credit Agreement dated as of March 31,
1995.
10.9 Domestic Incentive Plan between the Company and Hallwood
Petroleum, Inc. dated
January 14, 1993 (corrected version).
10.11
1995 Unit Option Plan Loan Program.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HALLWOOD ENERGY PARTNERS, L. P.
BY: HALLWOOD ENERGY CORPORATION
GENERAL PARTNER
Date: May 11, 1995 By:/S/Robert S. Pfeiffer
Robert S. Pfeiffer, Vice President
(Chief Financial Officer)