United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[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 0-17559
ENEX OIL & GAS INCOME PROGRAM III - SERIES 7, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0214444
(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 7, L.P.
BALANCE SHEET
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September 30,
ASSETS 1996
---------------------
(Unaudited)
CURRENT ASSETS:
Accounts receivable - oil & gas sales $ 27,709
Other current assets 2,490
---------------------
Total current assets 30,199
---------------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 1,996,940
Less accumulated depreciation and depletion 1,834,644
---------------------
Property, net 162,296
---------------------
TOTAL $ 192,495
=====================
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 22,110
Payable to general partner 27,920
---------------------
Total current liabilities 50,030
---------------------
NONCURRENT PAYABLE TO GENERAL PARTNER 55,841
---------------------
PARTNERS' CAPITAL:
Limited partners 47,656
General partner 38,968
---------------------
Total partners' capital 86,624
---------------------
TOTAL $ 192,495
=====================
Number of $500 Limited Partner units outstanding 4,527
See accompanying notes to financial statements.
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I-1
ENEX OIL & GAS INCOME PROGRAM III - SERIES 7, 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 $ 62,751 $ 57,419 $ 194,884 $ $ 191,633
----------------- ----------------- ----------------- -------------------
EXPENSES:
Depreciation and depletion 14,926 25,669 41,776 75,958
Impairment of property - - 128,116
Lease operating expenses 28,968 32,660 95,136 100,270
Production taxes 3,683 3,221 11,761 11,013
General and administrative 7,197 9,710 27,013 33,700
----------------- ----------------- ----------------- -------------------
Total expenses 54,774 71,260 303,802 220,941
----------------- ----------------- ----------------- -------------------
INCOME (LOSS) FROM OPERATIONS 7,977 (13,841) (108,918) (29,308)
----------------- ----------------- ----------------- -------------------
OTHER INCOME:
Gain on sale of property 541 - 27,257 -
----------------- ----------------- ----------------- -------------------
NET INCOME (LOSS) $ 8,518 $ (13,841) $ (81,661) $ $ (29,308)
================= ================= ================= ===================
See accompanying notes to financial statements.
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I-2
ENEX OIL AND GAS INCOME PROGRAM III - SERIES 7, L.P.
STATEMENTS OF CASH FLOWS
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(UNAUDITED)
NINE MONTHS ENDED
--------------------------------------------
September 30, September 30,
1995 1995
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (81,661) $ (29,308)
------------------- -------------------
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities:
Depreciation, depletion and amortization 41,776 75,958
Impairment of property 128,116 -
Gain on sale of property (27,257) -
(Increase) decrease in:
Accounts receivable - oil & gas sales (7,141) 2,830
Other current assets (159) (682)
(Decrease) in:
Accounts payable (1,655) (4,832)
Payable to general partner (57,495) (4,452)
------------------- -------------------
Total adjustments 76,185 68,822
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Net cash provided (used) by operating activities (5,476) 39,514
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 37,143 -
Property additions - development costs (30,423) (5,336)
------------------- -------------------
Net cash provided (used) by investing activities 6,720 (5,336)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (9,670) (30,330)
------------------- -------------------
NET INCREASE (DECREASE) IN CASH (8,426) 3,848
CASH AT BEGINNING OF YEAR 8,426 1,384
------------------- -------------------
CASH AT END OF PERIOD $ 0 $ 5,232
=================== ===================
See accompanying notes to financial statements.
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I-3
ENEX OIL & GAS INCOME PROGRAM III - SERIES 7, 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. Effective February 1, 1996, the Company sold its interest in the Credo
acquisition for $6,300. The Company recognized a gain of $393 on the sale.
Effective April 1, 1996, the Company sold its interest in the Kidd well in
the Enexco acquisition for $16,000. The Company recognized a $15,375 gain
from the sale. Effective June 1, 1996, the Company sold its interest in the
Harper well in the RIC acquisition for $13,904. The Company recognized a
gain of $10,948 from the sale. Effective August 1, 1996 the Company sold
its interest in the Spider Lake 3-2 well for $939. The Company recognized a
gain of $541 from the sale.
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. A cash distribution was made to the limited partners of the Company in
the amount of $7,097, representing net revenues from the sale of oil
and gas produced from properties owned by the Company. This
distribution was made on July 31, 1996.
5. 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 $128,116 for certain
oil and gas properties due to market indications that the carrying amounts
were not fully recoverable.
I-4
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 increased to $62,751 in 1996 from
$57,419 in 1995. This represents a increase of $5,332 (9%). Oil sales increased
by $383 (1%). A 36% increase in the average oil sales price caused sales to
increase by $11,945. This increase was partially offset by a 25% decrease in oil
production. Gas sales increased by $4,662 (37%). A 48% increase in the average
gas sales price increased sales by $5,654. This increase was partially offset by
an 8% decrease gas production. The changes in the average sales prices
correspond with changes in the overall market for the sale of oil and gas. The
decreases in oil and gas production were primarily the result of the sale of the
Credo acquisition in the first quarter of 1996 and the sale of the Kidd well in
the Enexco acquisition in the second quarter of 1996, coupled with natural
production declines.
Lease operating expenses decreased to $28,968 in the third quarter of 1996 from
$32,660 in the third quarter of 1995. The decrease of $3,692 (11%) is primarily
due to the changes in production, noted above.
Depreciation and depletion expense decreased to $14,926 in the third quarter of
1996 from $25,669 in the third quarter of 1995. This represents a decrease of
$10,743 (42%). The changes in production, noted above, reduced depreciation and
depletion expense by $5,283, while a 27% decrease in the depletion rate caused
depreciation and depletion expense to decrease by an additional $5,460. The rate
decrease is primarily due to the lower property basis resulting from the
recognition of an impairment of property for $128,116 in the first quarter of
1996.
Effective August 1, 1996 the Company sold its interest in the Spider Lake 3-2
well for $939. The Company recognized a gain of $541 from the sale.
General and administrative expenses decreased to $7,197 in the third quarter of
1996 from $9,710 in the third quarter of 1996. This decrease of $2,513 (26%) 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 $194,884 in 1996 from
$191,633 in 1995. This represents a increase of $3,251 (2%). Oil sales decreased
by $5,532 (4%). A 16% decrease in oil production reduced sales by $24,107. This
decrease was partially offset by a 15% increase in the average oil sales price.
Gas sales increased by $8,209 (18%). A 36% increase in the average gas sales
price increased sales by $14,235. This increase was partially offset by a 13%
decrease in gas production. The changes in the average sales prices correspond
with changes in the overall market for the sale of oil and gas. The decreases in
oil and gas production were primarily a result of natural production declines.
I-5
Lease operating expenses decreased to $95,136 in the first nine months of 1996
from $100,270 in the first nine months of 1995. The decrease of $5,134 (5%) is
primarily due to the changes in production, noted above.
Depreciation and depletion expense decreased to $41,776 in the first nine months
of 1996 from $75,958 in the first nine months of 1995. This represents a
decrease of $34,182 (45%). The changes in production, noted above, caused
depreciation and depletion expense to decrease by $11,727, while a 35% decrease
in the depletion rate reduced depreciation and depletion expense by an
additional $22,455. The rate decrease is primarily due to the lower property
basis resulting from the recognition of an impairment of property for $128,116
in the first quarter of 1996.
Effective February 1, 1996, the Company sold its interest in the Credo
acquisition for $6,300. The Company recognized a gain of $393 on the sale.
Effective April 1, 1996, the Company sold its interest in the Kidd well in the
Enexco acquisition for $16,000. The Company recognized a $15,375 gain from the
sale. Effective June 1, 1996, the Company sold its interest in the Harper well
in the RIC acquisition for $13,904. The Company recognized a gain of $10,948
from the sale. Effective August 1, 1996 the Company sold its interest in the
Spider Lake 3-2 well for $939. The Company recognized a gain of $431 from the
sale.
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 $128,116 for certain
oil and gas properties due to market indications that the carrying amounts were
not fully recoverable.
On April 2, 1996, the Company settled a property interest dispute on the Barnes
Estate acquisition. In the settlement, the Company agreed to pay $1,250 to the
plaintiff and convey 0.051 overriding royalty interest in the Barnes Estate #1
and #2 wells. Such conveyance should not have a material impact on the current
or future revenues of the Company.
General and administrative expenses decreased to $27,013 in the first nine
months of 1996 from $33,700 in the first nine months of 1995. This decrease of
$6,687 (20%) is primarily due to less staff time being required to manage the
Company's operations.
I-6
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 after the payment of its debt
obligations. 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
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 activities.
The Company will continue to recover its reserves and distribute to the limited
partners the net proceeds realized from the sale of oil and gas production after
the payment of its debt obligations. Distribution amounts are subject to change
if net revenues are greater or less than expected. Nonetheless, the general
partner believes the Company will continue to have sufficient cash flow to fund
operations and to maintain a regular pattern of distributions.
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 7, 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
November 13, 1996 By: /s/ James A. Klein
-------------------
James A. Klein
Controller and Chief
Accounting Officer