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 0-17560
ENEX OIL & GAS INCOME PROGRAM IV - SERIES 2, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0251420
(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 OIL & GAS INCOME PROGRAM IV - SERIES 2, L.P.
BALANCE SHEET
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September 30,
ASSETS 1996
----------------
(Unaudited)
CURRENT ASSETS:
Cash $ 4,479
Accounts receivable 15,111
Other current assets 529
---------------
Total current assets 20,119
---------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 1,117,902
Less accumulated depreciation and depletion 1,098,141
---------------
Property, net 19,761
---------------
TOTAL $ 39,880
===============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 1,375
Payable to general partner 12,548
---------------
Total current liabilities 13,923
---------------
PARTNERS' CAPITAL (DEFICIT):
Limited partners (11,700)
General partner 37,657
---------------
Total partners' capital 25,957
---------------
TOTAL $ 39,880
===============
Number of $500 Limited Partner units outstanding 4,938
See accompanying notes to financial statements.
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ENEX OIL & GAS INCOME PROGRAM IV - 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 $ 30,316 $ 36,547 $ 92,253 $ 114,530
----------------- ----------------- ----------------- -------------------
EXPENSES:
Depreciation and depletion 1,590 23,243 5,891 64,957
Impairment of property - - 142,465 -
Lease operating expenses 9,216 17,055 30,209 65,594
Production taxes 1,692 2,140 5,232 6,933
General and administrative 4,106 6,294 14,793 27,019
----------------- ----------------- ----------------- -------------------
Total expenses 16,604 48,732 198,590 164,503
----------------- ----------------- ----------------- -------------------
INCOME (LOSS) FROM OPERATIONS 13,712 (12,185) (106,337) (49,973)
----------------- ----------------- ----------------- -------------------
OTHER INCOME:
Gain from sale of property - - 1,868 -
----------------- ----------------- ----------------- -------------------
NET INCOME (LOSS) $ 13,712 $ (12,185) $ (104,469) $ (49,973)
================= ================= ================= ===================
See accompanying notes to financial statements.
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ENEX OIL AND GAS INCOME PROGRAM IV - 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 (loss) $ (104,469) $ (49,973)
------------------- -------------------
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and depletion 5,891 64,957
Impairment of property 142,465 -
Gain from sale of property (1,868) -
(Increase) decrease in:
Accounts receivable - oil & gas sales 895 (1,001)
Other current assets - (529)
Increase (decrease) in:
Accounts payable (5,207) (9,031)
Payable to general partner (56,996) 669
------------------- -------------------
Total adjustments 85,180 55,065
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Net cash provided by operating activities (19,289) 5,092
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 29,925 -
Property additions - development costs (647) (903)
------------------- -------------------
Net cash provided (used) by investing activities 29,278 (903)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (7,140) (9,434)
------------------- -------------------
NET INCREASE (DECREASE) IN CASH 2,849 (5,245)
CASH AT BEGINNING OF YEAR 1,630 6,759
------------------- -------------------
CASH AT END OF PERIOD $ 4,479 $ 1,514
=================== ===================
See accompanying notes to financial statements.
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I-3
ENEX OIL & GAS INCOME PROGRAM IV - 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. On November 13, 1996, the Company submitted amended
preliminary proxy material to the SEC with respect to this consolidationThe
terms and conditions of the proposed consolidation are set forth in such
preliminary proxy material.
3. A cash distribution was made to the limited partners of the Company in
the amount of $5,457, 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.
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. In the first quarter of 1996, the
Company recognized a non-cash impairment provision of $142,465 for certain
oil and gas properties due to market indications that the carrying amounts
were not fully recoverable.
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Item 2. Management's Discussion and Analysis or Plan of Operations.
Third Quarter 1995 Compared to Third Quarter 1996
Oil and gas sales for the third quarter decreased to $30,316 in 1996 from
$36,547 in 1995. This represents a decrease of $6,231 (17%). Oil sales decreased
by $9,542 (49%). A 60% decrease in oil production reduced sales by $11,729. This
decrease was partially offset by a 28% increase in the average oil sales price.
Gas sales increased by $3,311 (19%). A 37% increase in the average gas sales
price increased sales by $5,537. This increase was partially offset by a 13%
decrease in the gas production. The increases in the average oil and gas 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 due to the sale of
the Credo acquisition in the first quarter of 1996, coupled with natural
production declines which were especially pronounced on the Barnes Estate
acquisition.
Lease operating expenses decreased to $9,216 in 1996 from $17,055 in 1995. The
decrease of $7,839 (46%) is primarily due to the changes in production, noted
above, coupled with costs incurred on the Credo acquisition to repair a casing
leak in the third quarter of 1995.
Depreciation and depletion expense decreased to $1,590 in the third quarter of
1996 from $23,243 in the third quarter of 1995. This represents a decrease of
$21,653. The changes in production, noted above, reduced depreciation and
depletion expense by $7,436. A 90% decrease in the depletion rate reduced
depreciation and depletion expense by an additional $14,217. The decrease in the
depletion rate was primarily due to the lower property basis resulting from the
recognition of a $142,465 impairment of property in the first quarter of 1996.
General and administrative expenses decreased to $4,106 in 1996 from $6,294 in
1995. This decrease of $2,188 (35%) is due to less staff time being required to
manage the Company's operations in 1996.
First Nine Months in 1995 Compared to First Nine Months in 1996
Oil and gas sales for the first nine months decreased to $92,253 in 1996 from
$114,530 in 1995. This represents a decrease of $22,277 (19%). Oil sales
decreased by $24,785 (44%). A 50% decrease in oil production reduced sales by
$28,473. This decrease was partially offset by a 14% increase in the average oil
sales price. Gas sales increased by $2,508 (4%). A 30% increase in the average
gas sales price increased sales by $13,819. This increase was partially offset
by a 50% 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 due to the sale of the Credo
acquisition in the first quarter of 1996, coupled with natural production
declines which were especially pronounced on the Barnes Estate acquisition.
I-5
Lease operating expenses for the first nine months decreased to $30,209 in 1996
from $65,594 in 1995. The decrease of $35,385 (54%) is primarily due to the
declines in production, noted above, coupled with costs incurred on the Credo
acquisition to repair a casing leak in 1995.
Depreciation and depletion expense decreased to $5,891 in the first nine months
of 1996 from $64,957 in the first nine months of 1995. This represents a
decrease of $59,066 (91%). The changes in production, noted above, reduced
depreciation and depletion expense by $19,857. An 87% decrease in the depletion
rate reduced depreciation and depletion expense by an additional $39,209. The
decrease in the depletion rate was primarily due to the lower property basis
resulting from the recognition of a $142,465 impairment of property in the first
quarter of 1996.
Effective February 1, 1996, the Company sold its interest in the Credo
acquisition for $29,925. The Company recognized a gain of $1,868 on 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 $142,465 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 $5,000 to the
plaintiff and convey 0.20% 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 $14,793 in 1996 from $27,019 in
1995. This decrease of $12,226 (45%) is primarily due to $6,122 of legal costs
incurred in the second quarter of 1995 for a property interest dispute on the
Barnes Estate acquisition, coupled with 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 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 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 form the sale of
oil and gas production. Distribution amounts are subject to change if net
revenues are greater or less than expected. 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 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.
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 IV - 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
November 13, 1996 By: /s/ James A. Klein
-------------------
James A. Klein
Controller and Chief
Accounting Officer