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, 1997
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 0-17595
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 3, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0251417
(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 88-89 INCOME AND RETIREMENT FUND - SERIES 3, L.P.
BALANCE SHEET
- ---------------------------------------------------------------------------
September 30,
ASSETS 1997
---------------------
(Unaudited)
CURRENT ASSETS:
Cash $ 6,826
Accounts receivable - oil & gas sales 11,470
---------------------
Total current assets 18,296
---------------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests 1,510,573
Less accumulated depletion 1,483,103
---------------------
Property, net 27,470
---------------------
TOTAL $ 45,766
=====================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Payable to general partner $ 73,584
---------------------
PARTNERS' CAPITAL (DEFICIT):
Limited partners (35,552)
General partner 7,734
---------------------
Total partners' capital (deficit) (27,818)
---------------------
TOTAL $ 45,766
=====================
Number of $500 Limited Partner units outstanding 3,414
See accompanying notes to financial statements.
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I-1
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 3, L.P.
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------
(UNAUDITED) QUARTER ENDED NINE MONTHS ENDED
-------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------- ----------- ---------- -------------
REVENUES:
Oil and gas sales $ 7,870 $ 6,778 $ 33,270 $ 26,665
---------- ----------- ---------- -------------
EXPENSES:
Depletion 2,853 6,660 9,996 16,022
Impairment of property - - - 258,758
Production taxes 32 12 91 227
General and administrative 5,293 2,538 10,596 8,989
---------- ----------- ---------- -------------
Total expenses 8,178 9,210 20,683 283,996
---------- ----------- ---------- -------------
NET INCOME (LOSS) $ (308) $ (2,432) $ 12,587 $ (257,331)
========== =========== ========== =============
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
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ENEX 88-89 INCOME AND RETIREMENT FUND-SERIES 3, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
- ----------------------------------------------------------------------------
PER $500
LIMITED
PARTNER
GENERAL LIMITED UNIT OUT-
TOTAL PARTNER PARTNERS STANDING
------------ ----------- ----------- -------------
BALANCE, JANUARY 1, 1996 $ 205,126 $ 2,835 $ 202,291 $ 59
NET INCOME (LOSS) (245,531) 2,641 (248,172) (72)
------------ ----------- ----------- -------------
BALANCE, DECEMBER 31, 1996 (40,405) 5,476 (45,881) (13)
NET INCOME 12,587 2,258 10,329 3
------------ ----------- ----------- -------------
BALANCE, SEPTEMBER 30,1997 $ (27,818) $ 7,734 $ (35,552)(1) $ (10)
============ =========== =========== =============
(1) Includes 242 units purchased by the general partner as a limited partner.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
I-3
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 3, L.P.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
-----------------------------
September 30, September 30,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 12,587 $ (257,331)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion 9,996 16,022
Impairment of property - 258,758
(Increase) decrease in:
Accounts receivable - oil & gas sales 1,651 (1,420)
(Decrease) in:
Accounts payable (1,731) (1,595)
Payable to general partner (21,851) (12,712)
----------- -----------
Total adjustments (11,935) 259,053
----------- -----------
NET INCREASE IN CASH 652 1,722
CASH AT BEGINNING OF YEAR 6,174 776
----------- -----------
CASH AT END OF PERIOD $ 6,826 $ 2,498
=========== ===========
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
I-4
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 3, 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. 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 $258,758 for certain oil and gas properties
primarily due to downward reserve revisions on the Lake Decade
acquisition. The Lake Decade acquisition included significant reserves
that were considered "proved" but not yet developed. Proved
undeveloped reserves were assigned to these leases based on offset
production in existing wells and on geologic mapping of the existing
wells north of the producing wells. Enex and its affiliated entities
owned less than 10% of this acquisition. The other working interest
owners which held the remaining interest in the acquisition, including
the operator of the field, also carried these reserves as "proved
undeveloped" reserves prior to 1996. Wells drilled near the
acquisition in an attempt to increase production from the field were
dry holes. Revised geologic mapping, based on production from existing
wells and the unsuccessful wells drilled offsetting the property,
indicated a much smaller productive area than had been originally
calculated. It was determined by the operator of the acquisition that
future drilling could not be justified. The well which was holding the
lease, which had undeveloped reserves assigned to it, was recompleted
by the operator in 1996 to a zone in which the Company did not own an
interest. As a result, the lease expired and the undeveloped reserves
associated with the lease had to be written off. This was the cause of
both the downward reserve revisions in 1996 and the reserve valuation
write downs taken by the Company in the first quarter of 1996.
3. A Special Meeting, whose purpose was to vote on the proposal to sell
Partnership's assets and, thereafter, dissolve and liquidate the
partnership in accordance with the applicable provisions of the limited
partnership agreements commenced, at 2:00 P.M. on October 28, 1997.
I-5
The proxy votes received prior to the meeting were voted as follows.
Enex 88-89 Income & Retirement Fund, Series 3
For Against
Liquidation Liquidation Abstain
------------------- ------------ -----------
42.15% 7.72% 5.91%
As indicated in the table above, while a large majority of the votes cast by the
limited partners of the Partnership were in favor of the proposed liquidation,
over 40% of the limited partnership interests failed to vote on the proposal.
This resulted in an inability to approve the proposal by a majority of the total
outstanding limited partnerships interests. As such, the meeting was adjourned
until December 1, 1997, to allow time for a sufficient number of votes to be
received to attain a majority-in-interest vote on the liquidation.
In accordance with ss.9.5 of the Partnership's limited partnership agreement,
Enex Resources Corporation, gave 120 days notice, of its plans to resign as
General Partner. Under the terms of the limited partnership agreement, the
Partnership can then be dissolved without a majority Limited Partner Vote. If a
majority-in-interest vote to approve the proposed dissolution is not received by
December 1, 1997, Enex will resign as General Partner.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Third Quarter 1997 Compared to Third Quarter 1996
Oil and gas sales for the third quarter increased from $6,778 in 1996 to $7,870
in 1997. This represents an increase of $1,092 (16%). Oil sales increased by
$1,618 or 33%. A 139% increase in average net oil sales price increased oil
sales by $3,821. This increase was partially offset by a 45% decrease in oil
production. Gas sales decreased by $526 or 29%. An 8% decrease in the average
gas sales price decreased sales by $113. A 22% decrease in gas production
reduced gas sales by an additional $413. The decrease in oil production was
primarily due to successful workovers performed on the El Mac acquisition in
1996, which caused a surge in third quarter 1996 production. The decrease in gas
production was primarily due to natural production declines. The increase in
average oil net sales price was primarily the result of higher expenses incurred
on the Company's net profit interests in 1996, including on the El Mac
acquisition which incurred workover charges in the third quarter of 1996. The
decrease in average gas sales price was primarily the result of relatively
higher sales from properties with a lower average gas sales price.
Depletion expense decreased from $6,660 in the third quarter of 1996 to $2,853
in the third quarter of 1997. This represents a decrease of $3,807 (57%). A 35%
decrease in the depletion rate reduced depletion expense by $1,497. The changes
in production noted above, decreased depletion an additional $2,310. The
decrease in the depletion rate was primarily due to relatively higher production
from the El Mac and Bagley acquisitions which have relatively lower depletion
rates, partially offset by downward revisions of the oil and gas reserves during
December 1996.
I-6
General and administrative expenses increased from $2,538 in 1996 to $5,293 in
1997. This increase of $2,755 (109%) is primarily due to more staff time being
required to manage the Company's operations.
First Nine Months in 1997 Compared to First Nine Months in 1996
Oil and gas sales for the first nine months increased from $26,665 in 1996 to
$33,270 in 1997. This represents an increase of $6,605 (25%). Oil sales
increased by $6,592 or 34%. A 58% increase in the average net oil sales price
increased oil sales by $9,432. This was partially offset by a 65% decrease in
oil production. Gas sales increased by $13. A 1% increase in the average net gas
sales price was virtually offset by a 1% decrease in gas production. The
decrease in oil and gas production were primarily due to natural production
declines. The increase in average net oil sales price was primarily the result
of lower expenses incurred on the Company's net profit interests, including on
the El Mac acquisition which incurred workover charges in the third quarter of
1996. The increase in average net gas price corresponds with higher prices in
the overall market for the sale of gas.
Depletion expense decreased from $16,022 in the first nine months of 1996 to
$9,996 in the first nine months of 1997. This represents a decrease of $6,026
(38%). A 32% decrease in the depletion rate reduced depletion expense by $4,704.
The changes in the production, noted above, decreased depletion an additional
$1,322. The decrease in the depletion rate was primarily due to relatively
higher production from the El Mac and Bagley acquisitions which have relatively
lower depletion rates, partially offset by downward revisions of the oil and gas
reserves during December 1996.
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 $258,758 for certain
oil and gas properties primarily due to downward reserve revisions on the Lake
Decade acquisition. The Lake Decade acquisition included significant reserves
that were considered "proved" but not yet developed. Proved undeveloped reserves
were assigned to these leases based on offset production in existing wells and
on geologic mapping of the existing wells north of the producing wells. Enex and
its affiliated entities owned less than 10% of this acquisition. The other
working interest owners which held the remaining interest in the acquisition,
including the operator of the field, also carried these reserves as "proved
undeveloped" reserves prior to 1996. Wells drilled near the acquisition in an
attempt to increase production from the field were dry holes. Revised geologic
mapping, based on production from existing wells and the unsuccessful wells
drilled offsetting the property, indicated a much smaller productive area than
had been originally
I-7
calculated. It was determined by the operator of the acquisition that future
drilling could not be justified. The well which was holding the lease, which had
undeveloped reserves assigned to it, was recompleted by the operator in 1996 to
a zone in which the Company did not own an interest. As a result, the lease
expired and the undeveloped reserves associated with the lease had to be written
off. This was the cause of both the downward reserve revisions in 1996 and the
reserve valuation write downs taken by the Company in the first quarter of 1996.
General and administrative expenses increased from $8,989 in 1996 to $10,596 in
1997. This increase of $1,607 (18%) is primarily due to more staff time being
required to manage the Company's operations.
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 1996 to 1997 are primarily due to the changes in oil
and gas sales described above.
A Special Meeting, whose purpose was to vote on the proposal to sell
Partnership's assets and, thereafter, dissolve and liquidate the partnership in
accordance with the applicable provisions of the limited partnership agreements,
commenced at 2:00 P.M. on October 28, 1997.
The proxy votes received prior to the meeting were voted as follows.
Enex 88-89 Income & Retirement Fund, Series 3
For Against
Liquidation Liquidation Abstain
------------- -------------- -----------
42.15% 7.72% 5.91%
As indicated in the table above, while a large majority of the votes cast by the
limited partners of the Partnership were in favor of the proposed liquidation,
over 40% of the limited partnership interests failed to vote on the proposal.
This resulted in an inability to approve the proposal by a majority of the total
outstanding limited partnerships interests. As such, the meeting was adjourned
until December 1, 1997, to allow time for a sufficient number of votes to be
received to attain a majority-in-interest vote on the liquidation.
In accordance with ss.9.5 of the Partnership's limited partnership agreement,
Enex Resources Corporation, gave 120 days notice, of its plans to resign as
General Partner. Under the terms of the limited partnership agreement the
Partnership can then be dissolved without a majority Limited Partner Vote. If a
majority-in-interest vote to approve the proposed dissolution is not received by
December 1, 1997, Enex will resign as General Partner.
I-8
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, 1997.
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 88-89 INCOME AND RETIREMENT
FUND - SERIES 3, L.P.
(Registrant)
By: ENEX RESOURCES CORPORATION
General Partner
By: /s/ James A. Klein
--------------------
James A. Klein
Secretary, Treasurer and
Chief Financial Officer
November 11, 1997 By: /s/ Larry W. Morris
-------------------
Larry W. Morris
Controller and Chief
Accounting Officer