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 0-16550
ENEX INCOME AND RETIREMENT FUND - SERIES 2, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0222815
(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) has 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 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
BALANCE SHEET
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September 30,
ASSETS 1996
---------------------
(Unaudited)
CURRENT ASSETS:
Cash $ 17,983
Accounts receivable - oil & gas sales 26,063
---------------------
Total current assets 44,046
---------------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests 1,209,403
Less accumulated depletion 899,682
---------------------
Property, net 309,721
---------------------
TOTAL $ 353,767
=====================
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 6
Payable to general partner 3,486
---------------------
Total current liabilities 3,492
---------------------
PARTNERS' CAPITAL:
Limited partners 337,785
General partner 12,490
---------------------
Total partners' capital 350,275
---------------------
TOTAL $ 353,767
=====================
Number of $500 Limited Partner units outstanding 2,884
See accompanying notes to financial statements.
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ENEX INCOME AND RETIREMENT FUND - 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 $ 22,743 $ 24,270 $ 74,017 $ 64,774
---------------- ------------------ ------------------ -------------------
EXPENSES:
Depletion 3,063 13,794 19,206 28,640
Impairment of assets - - 49,409 -
Production taxes 1,311 2,008 4,353 3,140
General and administrative 5,744 7,002 20,865 23,189
---------------- ------------------ ------------------ -------------------
Total expenses 10,118 22,804 93,833 54,969
---------------- ------------------ ------------------ -------------------
INCOME (LOSS) FROM OPERATIONS 12,625 1,466 (19,816) 9,805
---------------- ------------------ ------------------ -------------------
OTHER INCOME:
Gain from sale of property - 15,286 - 15,286
---------------- ------------------ ------------------ -------------------
NET INCOME (LOSS) $ 12,625 $ 16,752 $ (19,816) $ 25,091
================ ================== ================== ===================
See accompanying notes to financial statements.
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ENEX INCOME AND RETIREMENT FUND - SERIES 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 $ 468,976 $ 8,581 $ 460,395 $ 160
CASH DISTRIBUTIONS (131,319) (13,132) (118,187) (41)
NET INCOME 43,023 9,421 33,602 12
------------------- ------------------- ------------------- --------------------
BALANCE, DECEMBER 31, 1994 380,680 4,870 375,810 131
CASH DISTRIBUTIONS (24,707) (2,471) (22,236) (8)
NET INCOME 14,118 5,214 8,904 3
------------------- ------------------- ------------------- --------------------
BALANCE, DECEMBER 31, 1995 370,091 7,612 362,479 126
NET INCOME (19,816) 4,878 (24,694) (9)
------------------- ------------------- ------------------- --------------------
BALANCE, SEPTEMBER 30, 1996 $ 350,275 $ 12,490 $ 337,785 (1) $ 117
=================== =================== =================== ====================
(1) Includes 994 units purchased by the general partner as a limited partner.
See accompanying notes to financial statements.
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ENEX INCOME AND RETIREMENT FUND - SERIES 2, L.P.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
--------------------------------------------
September 30, September 30,
1996 1995
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (19,816) $ 25,091
------------------- -------------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depletion 19,206 28,640
Impairment of property 49,409 -
Gain from sale of property - (15,286)
Increase (decrease) in:
Accounts receivable - oil & gas sales (9,688) 4,048
Accounts receivable - affiliated partnerships - (340)
Other current assets - (20,000)
(Decrease) in:
Accounts payable (4,655) (3,033)
Payable to general partner (17,362) (18,032)
------------------- -------------------
Total adjustments 36,910 (24,003)
------------------- -------------------
Net cash provided by operating activities 17,094 1,088
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property - 20,000
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions - (24,708)
------------------- -------------------
NET INCREASE (DECREASE) IN CASH 17,094 (3,620)
CASH AT BEGINNING OF YEAR 889 7,677
------------------- -------------------
CASH AT END OF PERIOD $ 17,983 $ 4,057
=================== ===================
See accompanying notes to financial statements.
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ENEX INCOME AND RETIREMENT FUND - 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. 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. The terms and conditions of the proposed consolidation
are set forth in such preliminary proxy material.
3. 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. In the first quarter of 1996, the
Company recognized a non-cash impairment provision of $49,409 for certain
oil and gas properties due to changes in the overall market for the sale of
oil and gas and significant decreases in the projected production from
certain of the Company's oil and gas properties.
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Third Quarter 1995 Compared to Third Quarter 1996
Oil and gas sales for the third quarter decreased to $22,743 in 1996 from
$24,270 in 1995. This represents a decrease of $1,527 (6%). Oil sales increased
by $2,807 (105%). A 17% increase in oil production increased sales by $467. A
75% increase in the average net oil sales price increased sales by an additional
$2,340. Gas sales decreased by $4,334 (20%). A 51% decrease in gas production
decreased sales by $11,018. This decrease was partially offset by a 65% increase
in the average net gas sales price. The increase in oil production was primarily
a result of higher production from the Pecan Island acquisition which had
additional wells drilled on it in 1996. The decrease in gas production was
primarily due to lower production from the Corinne acquisition which had been
shut- in for over-production in the third quarter of 1996, and due to lower
production from the East Cameron acquisition, which was shut-in for workovers in
the third quarter of 1996. The increase in average net oil sales price was
primarily the result of relatively higher production from properties with a
higher oil sales price, and due to higher prices in the overall market for the
sale of oil. The increase in the average net gas sales price was primarily due
to relatively higher production from the properties with relatively higher gas
sales price coupled with higher prices in the overall market for the sale gas.
Depletion expense decreased to $3,063 in the third quarter of 1996 from $13,794
in the third quarter of 1995. This represents an decrease of $10,731 (78%). The
changes in production, noted above, caused depletion expense to decrease by
$5,922, while a 61% decrease in the depletion rate reduced depletion expense by
an additional $4,809. The rate decrease was primarily due to an upward revision
of the oil reserves during December 1995 and the lower property basis resulting
from the recognition of a $49,409 property impairment in the first quarter of
1996, partially offset by a downward revision of the gas reserves during
December 1995.
General and administrative expenses decreased to $5,744 in 1996 from $7,002 in
1995. This decrease of $1,258 (18%) is primarily due to less staff time being
required to manage the Company's operations.
First Nine Months in 1995 Compared to First Nine Months in 1996
Oil and gas sales for the first nine months increased to $74,017 in 1996 from
$64,774 in 1995. This represents an increase of $9,243 (14%). Oil sales
decreased by $3,275 (22%). A 41% decrease in oil production reduced oil sales by
$6,123. This decrease was partially offset by a 32% increase in the average net
oil sales price. Gas sales increased by $12,518 (25%). A 36% increase in the
average net oil sales price increased sales by $16,288. This increase was
partially offset by a, 8% decrease in gas production. The decrease in oil
production was primarily a result of the sale of the Garcia wells in the Shana
acquisition, effective July 1995, partially offset by higher production from the
Pecan Island acquisition which had additional wells drilled on it in 1996. The
decrease in gas production was primarily due to natural production declines. The
increases in average net oil and gas sales prices correspond with higher prices
in the overall market for the sale of oil and gas.
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Depletion expense decreased to $19,206 in the first nine months of 1996 from
$28,640 in the first nine months of 1995. This represents a decrease of $9,434
(33%). The changes in production, noted above, caused depletion expense to
decrease by $4,000, while a 22% decrease in the depletion rate decreased
depletion expense by an additional $5,434. The rate decrease was primarily due
to an upward revision of the oil reserves during December 1995 and the lower
property basis resulting from the recognition of a $49,409 property impairment
in the first quarter of 1996, partially offset by a downward revision of the gas
reserves during December 1995.
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. In the first quarter of 1996,
the Company recognized a non-cash impairment provision of $49,409 for certain
oil and gas properties due to changes in the overall market for the sale of oil
and gas and significant decreases in the projected production from certain of
the Company's oil and gas properties.
General and administrative expenses decreased to $20,865 in 1996 from $23,189 in
1995. This decrease of $2,324 (10%) is primarily due to less staff time being
required to manage the Company's operations.
Account receivable - oil and gas sales are disproportionately high in relation
to oil and gas sales as the revenues from the Corinne field were withheld by the
purchaser due to a gas balancing dispute.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash flow from operations is a direct result of the amount of net
proceeds realized from the sale of oil and gas production. Accordingly, the
changes in cash flow from 1995 to 1996 are primarily due to the changes in oil
and gas sales described above. It is the general partner's intention to
distribute substantially all of the Company's 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 during 1995. Future
distributions are dependent upon, among other things, an increase in prices
received for oil and gas. The Company will continue to recover its reserves and
distribute to the limited partners the net proceeds realized
I-7
form the sale of oil and gas production. Distribution amounts are subject to
change if net revenues are greater or less than expected. 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
Company's cash flow provided by operating, financing and investing activities.
Future periodic distributions will be made once sufficient net revenues are
accumulated.
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.
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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 INCOME AND RETIREMENT
FUND - 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