United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from...............to...............
Commission file number 0-15434
ENEX OIL & GAS INCOME PROGRAM III - SERIES 2, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0179824
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 200, Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices)
Issuer's telephone number:
(713) 358-8401
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Transitional Small Business Disclosure Format (Check one):
Yes No x
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENEX OIL & GAS INCOME PROGRAM III - SERIES 2, L.P.
BALANCE SHEET
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September 30,
ASSETS 1996
---------------
(Unaudited)
CURRENT ASSETS:
Cash $ 11,057
Accounts receivable - oil & gas sales 22,595
Other current assets 1,108
--------------
Total current assets 34,760
--------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 1,652,552
Less accumulated depreciation and depletion 1,320,349
--------------
Property, net 332,203
--------------
TOTAL $ 366,963
==============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 3,139
Current portion of payable to general partner 263,595
--------------
Total current liabilities 266,734
--------------
PARTNERS' CAPITAL:
Limited partners 40,636
General partner 59,593
--------------
Total partners' capital 100,229
--------------
TOTAL $ 366,963
==============
Number of $500 Limited Partner units outstanding 4,270
See accompanying notes to financial statements.
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I-1
ENEX OIL & GAS INCOME PROGRAM III - SERIES 2, L.P.
STATEMENTS OF OPERATIONS
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(UNAUDITED) QUARTER ENDED NINE MONTHS ENDED
-------------------------------------- ----------------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
----------------- ----------------- ----------------- -------------------
REVENUES:
Oil and gas sales $ 53,041 $ 44,792 $ 156,350 $ 134,338
----------------- ----------------- ----------------- -------------------
EXPENSES:
Depreciation and depletion 12,637 22,173 44,060 64,575
Lease operating expenses 7,153 9,357 24,345 33,519
Production taxes 2,559 1,978 7,481 6,049
General and administrative 5,822 5,669 22,269 16,367
----------------- ----------------- ----------------- -------------------
Total expenses 28,171 39,177 98,155 120,510
----------------- ----------------- ----------------- -------------------
INCOME FROM OPERATIONS 24,870 5,615 58,195 13,828
----------------- ----------------- ----------------- -------------------
OTHER EXPENSE:
Interest expense - - - (989)
----------------- ----------------- ----------------- -------------------
NET INCOME $ 24,870 $ 5,615 $ 58,195 $ 12,839
================= ================= ================= ===================
See accompanying notes to financial statements.
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I-2
ENEX OIL & GAS INCOME PROGRAM III - 2, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
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PER $500
LIMITED
PARTNER
GENERAL LIMITED UNIT OUT-
TOTAL PARTNER PARTNERS STANDING
-------------- ------------- -------------- --------
BALANCE, JANUARY 1, 1994 $ 168,851 $ 40,029 $ 128,822 $ 30
NET INCOME (LOSS) (145,923) 1,610 (147,533) (35)
-------------- ------------- -------------- --------
BALANCE, DECEMBER 31, 1994 22,928 41,639 (18,711) (5)
NET INCOME 19,106 7,730 11,376 3
-------------- ------------- -------------- --------
BALANCE, DECEMBER 31, 1995 $ 42,034 $ 49,369 $ (7,335)(1) $ (2)
NET INCOME 58,195 10,224 47,971 11
-------------- ------------- -------------- --------
BALANCE, SEPTEMBER 30, 1996 $ 100,229 $ 50,593 $ 40,636 (1) $ 10
============== ============= ============== ========
(1) Includes 892 units purchased by the general partner as a limited partner.
See accompanying notes to financial statements.
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I-3
ENEX OIL AND GAS INCOME PROGRAM III - SERIES 2, L.P.
STATEMENTS OF CASH FLOWS
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(UNAUDITED)
NINE MONTHS ENDED
------------------------------
September 30, September 30,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58,195 $ 12,839
------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and depletion 44,060 64,575
(Increase) decrease in:
Accounts receivable - oil & gas sales (9,005) (1,177)
Other current assets 2,838 3,057
(Decrease) in:
Accounts payable (10,311) (4,923)
Payable to general partner (67,191) (40,054)
------------ ------------
Total adjustments (39,609) 21,478
------------ ------------
Net cash provided by operating activities 18,586 34,317
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions - development costs (9,658) (19,704)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in note payable to general partner - (11,490)
------------ ------------
NET INCREASE IN CASH 8,928 3,123
CASH AT BEGINNING OF YEAR 2,129 494
------------ ------------
CASH AT END OF PERIOD $ 11,057 $ 3,617
============ ============
Cash paid during period for interest $ - $ 989
============ ============
See accompanying notes to financial statements.
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I-4
ENEX OIL & GAS INCOME PROGRAM III - SERIES 2, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The interim financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of results for the
interim periods.
2. In the fourth quarter of 1993, the Company borrowed $101,092 from the
general partner, the proceeds of which were used to pay off a note to a
bank. The resultant note payable to the general partner bore interest
at a rate of prime plus three fourths of one percent or 9.75% during
the third quarter of 1995. Principal payments of $7,925 completely
repaid the note in the second quarter of 1995.
3. On August 9, 1996, the Company's General Partner submitted preliminary
proxy material to the Securities Exchange Commission with respect to a
proposed consolidation of the Company with 33 other managed limited
partnerships. On November 13, 1996, the Company submitted amended
preliminary proxy material to the SEC with respect to this
consolidation. The terms and conditions of the proposed consolidation
are set forth in such preliminary proxy material.
4. The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires certain assets to be reviewed for impairment whenever events or
circumstances indicate the carrying amount may not be recoverable. Prior to
this pronouncement, the Company assessed properties on an aggregate basis.
Upon adoption of SFAS 121, the Company began assessing properties on an
individual basis, wherein total capitalized costs may not exceed the
property's fair market value. The fair market value of each property was
determined by H. J. Gruy and Associates, ("Gruy"). To determine the fair
market value, Gruy estimated each property's oil and gas reserves, applied
certain assumptions regarding price and cost escalations, applied a 10%
discount factor for time and certain discount factors for risk, location,
type of ownership interest, category of reserves, operational
characteristics, and other factors.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Third Quarter 1996 Compared to Third Quarter 1995
Oil and gas sales for the third quarter increased to $53,041 in 1996 from
$44,792 in 1995. This represents an increase of $8,249 (18%). Oil sales
increased by $7,729 (20%). A 33% increase in average oil sales price increased
sales by $11,175. This increase was partially offset by a 9% decrease in oil
production. Gas sales increased by $520 (9%). A 57% increase in average gas
sales prices increased sales by $2,252, partially offset by a 30% decrease in
gas production. The increases in the average sales prices correspond with
changes in the overall market for the sale of oil and gas. The decrease in oil
and gas production was primarily due to natural production declines.
Lease operating expenses for the third quarter decreased to $7,153 in 1996 from
$9,357 in 1995. The decrease of $2,204 is primarily due to the changes in
production, noted above.
Depreciation and depletion expense decreased to $12,637 in the third quarter of
1996 from $22,173 in the third quarter of 1995. This represents a decrease of
$9,536 (43%). The changes in production, noted above, reduced depreciation and
depletion expense by $2,975. A 34% decrease in the depletion rate reduced
depreciation and depletion expense by an additional $6,561. The decrease in the
depletion rate is primarily the result of an upward revision of the oil and gas
reserves during December 1995.
General and administrative expenses incurred during the third quarter increased
to $5,822 in 1996 from $5,669 in 1995. This increase of $153 (34%) is primarily
due to more staff time being required to manage the Company's operations.
First Nine Months in 1996 Compared to First Nine Months in 1995
Oil and gas sales for the first nine months increased to $156,350 in 1996 from
$134,338 in 1995. This represents an increase of $22,012 (16%). Oil sales
increased by $14,148 (12%). A 26% increase in average oil sales price increased
sales by $27,814. This increase was partially offset by a 12% decrease in oil
production. Gas sales increased by $7,864 (51%). A 44% increase in average gas
sales prices increased sales by $7,168, while a 5% increase in production
increased sales by an additional $696. The increases in the average sales prices
correspond with changes in the overall market for the sale of oil and gas. The
decrease in oil production was primarily due to natural production declines. The
increase in gas production was primarily the result of the enhanced production
improvements on the Concord acquisition.
Lease operating expenses incurred during the first nine months decreased to
$24,345 in 1996 from $33,519 in 1995. The decrease of $9,174 (27%) is primarily
due from the settlement of the Company's equity investment in an electric
cooperative which resulted from the purchase of electricity used on the Florida
acquisition while it was owned by the Company.
I-6
Depreciation and depletion expense decreased to $44,060 in the first nine months
of 1996 from $64,575 in the first nine months of 1995. This represents a
decrease of $20,515 (32%). A 25% decrease in the depletion rate reduced
depreciation and depletion expense by $15,027. The changes in production, noted
above, reduced depreciation and depletion expense by an additional $5,488. The
decrease in the depletion rate is primarily the result of an upward revision of
the oil and gas reserves during December 1995.
General and administrative expenses increased to $22,269 in the first nine
months of 1996 from $16,367 in the first nine months of 1995. This increase of
$5,902 is primarily due to more staff time being required to manage the
Company's operations.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash flow is a direct result of the amount of net proceeds
realized from the sale of oil and gas production and the issuance of additional
debt. Accordingly, the changes in cash flow from 1995 to 1996 are primarily due
to the changes in oil and gas sales described above and the repayment of $11,490
on a note to the general partner in 1995. It is the general partner's intention
to distribute substantially all of the Company's remaining available cash flow
to the Company's partners. The Company's "available cash flow" is essentially
equal to the net amount of cash provided by operating, financing and investing
activities.
The Company discontinued the payment of distributions in the first quarter of
1994. Future distributions are dependent upon among other things, an increase in
the prices received for oil and gas. The Company will continue to recover its
reserves and reduce its obligations in 1996. The Company does not intend to
purchase additional properties or fund extensive development of existing oil and
gas properties, and as such; has no long-term liquidity needs. The Company's
projected cash flows from operations will provide sufficient funding to pay its
operating expenses and debt obligations. Based on the December 31, 1995 reserve
report prepared by Gruy, there appears to be sufficient future net revenues to
pay all obligations and expenses. The general partner does not intend to
accelerate the repayment of the debt beyond the cash flow provided by operating,
financing and investing activities. Based upon current projected cash flows from
its property, it does not appear that the Company will have sufficient cash to
pay distributions and pay its operating expenses, and meet its debt obligations
in the next twelve months.
On August 9, 1996, the Company's General Partner submitted preliminary proxy
material to the Securities Exchange Commission with respect to a proposed
consolidation of the Company with 33 other managed limited partnerships. On
November 13, 1996, the Company submitted amended preliminary proxy material to
the SEC with respect to this consolidation. The terms and conditions of the
proposed consolidation are set forth in such preliminary proxy material.
As of September 30, 1996, the Company had no material commitments for capital
expenditures. The Company does not intend to engage in any significant
developmental drilling activity.
I-7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) There are no exhibits to this report.
(b) The Company filed no reports on Form 8-K during the
quarter ended September 30, 1996.
II-1
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
ENEX OIL & GAS INCOME
PROGRAM III - SERIES 2, L.P.
(Registrant)
By:ENEX RESOURCES CORPORATION
General Partner
By: /s/ R. E. Densford
R. E. Densford
Vice President, Secretary
Treasurer and Chief Financial
Officer
December 23, 1996 By: /s/ James A. Klein
-------------------
James A. Klein
Controller and Chief
Accounting Officer