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 0-18322
ENEX OIL & GAS INCOME PROGRAM IV - SERIES 3, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0251421
(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:
(281) 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 3, L.P.
BALANCE SHEET
- ------------------------------------------------------------------------------
September 30,
ASSETS 1997
----------------
(Unaudited)
CURRENT ASSETS:
Cash $ 16,970
Accounts receivable - oil & gas sales 24,380
---------------
Total current assets 41,350
---------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 2,880,645
Less accumulated depreciation and depletion 2,833,625
---------------
Property, net 47,020
---------------
TOTAL $ 88,370
===============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 20,927
Payable to general partner 53,084
---------------
Total current liabilities 74,011
---------------
PARTNERS' CAPITAL (DEFICIT):
Limited partners (12,994)
General partner 27,353
---------------
Total partners' capital 14,359
---------------
TOTAL $ 88,370
===============
Number of $500 Limited Partner units outstanding 6,080
See accompanying notes to financial statements.
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I-1
ENEX OIL & GAS INCOME PROGRAM IV - 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 $ 22,136 $ 52,768 $ 80,760 $ 135,343
------------ ------------- ------------- --------------
EXPENSES:
Depreciation and depletion 6,025 9,353 15,444 24,748
Impairment of property - - - 538,207
Lease operating expenses 10,736 23,033 41,173 55,281
Production taxes 2,147 3,901 8,093 11,927
General and administrative 6,026 3,985 13,829 13,265
------------ ------------- ------------- --------------
Total expenses 24,934 40,272 78,539 643,428
------------ ------------- ------------- --------------
NET INCOME (LOSS) $ (2,798) $ 12,496 $ 2,221 $ (508,085)
============ ============= ============= ==============
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
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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 $ 526,561 $ 20,593 $ 505,968 $ 83
NET INCOME (LOSS) (514,423) 4,992 (519,415) (85)
---------- ------------ ------------ ----------
BALANCE, DECEMBER 31, 1996 12,138 25,585 (13,447) (2)
NET INCOME 2,221 1,768 453 -
---------- ------------ ------------ ----------
BALANCE, SEPTEMBER 30, 1997 $ 14,359 $ 27,353 $ (12,994)(1) $ (2)
========== ============ ============ ==========
(1) Includes 1,166 units purchased by the general partner as a limited partner.
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
I-3
ENEX OIL AND GAS INCOME PROGRAM IV - 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) $ 2,221 $ (508,085)
-------------- -------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and depletion 15,444 24,748
Impairment of property - 538,207
(Increase) decrease in:
Accounts receivable - oil & gas sales 5,226 (14,366)
Other current assets 981 -
(Decrease) in:
Accounts payable (11,086) (10,115)
Payable to general partner (2,096) (8,412)
-------------- -------------
Total adjustments 8,469 530,062
-------------- -------------
Net cash provided by operating activities 10,690 21,977
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions - development costs (355) (3,977)
-------------- -------------
NET INCREASE IN CASH 10,335 18,000
CASH AT BEGINNING OF YEAR 6,635 44
-------------- -------------
CASH AT END OF PERIOD $ 16,970 $ 18,044
============== =============
See accompanying notes to financial statements.
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I-4
ENEX OIL & GAS INCOME PROGRAM IV - 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 $538,207 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 drillings 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 writedowns taken by the Company in the first quarter of 1996.
I-5
3. A Special Meeting of the Limited Partners of the Company was held on
October 28, 1997, during which votes were cast by the Limited Partners
regarding the proposed dissolution and liquidation of this partnership.
A majority vote to liquidate and dissolve the partnership was received
as follows:
Enex Oil & Gas Income Program IV, Series 3
For Against
Liquidation Liquidation Abstain
------------------- ------------------- ------------------
55.43% 7.08% 3.88%
The properties owned by the partnership will be sold and any proceeds remaining
after the payment of all the partnership's debt will be distributed to the
limited partners. This partnership should be dissolved during the fourth quarter
of 1997.
Item 2. Management's Discussion and Analysis or Plan of Operations.
Third Quarter 1997 Compared to Third Quarter 1996
Oil and gas sales for the third quarter decreased from $52,768 in 1996 to
$22,136 in 1997. This represents a decrease of $30,632 (58%). Oil sales
decreased by $13,146 or (50%). A 32% decrease in the average oil sales price
reduced sales by $6,989. A 27% decrease in oil production reduced oil sales by
an additional $6,157. Gas sales decreased by $17,486 (66%). A 41% decrease in
the average gas sales price reduced sales by $6,320. A 42% decrease in gas
production reduced sales by an additional $11,166. The decrease in average oil
sales price was a result of lower lease operating expenses on the Bagley
acquisition, on which the Company pays a net profits royalty. The decrease in
oil and gas production was due primarily to natural production declines which
were especially pronounced on the Lake Decade acquisition. The decrease in the
average gas sales price was primarily a result of higher net profits royalty
paid on the Bagley acquisition, which incurred higher lease operating expenses
in 1996.
Lease operating expenses decreased from $23,033 in 1996 to $10,736 in 1997. The
decrease of $12,297 (53%) is primarily due to the workover expenses incurred on
the Bagley acquisition during the third quarter of 1996.
Depreciation and depletion expense decreased from $9,353 in the third quarter of
1996 to $6,025 in the third quarter of 1997. This represents a decrease of
$3,328 (36%). The changes in production, noted above, reduced depreciation and
depletion expense by $3,126. A 3% decrease in the depletion rate reduced
depreciation and depletion expense by an additional $202. The rate decrease was
primarily due to relatively higher production from the Bagley acquisition which
has a relatively lower depletion rate.
General and administrative expenses increased from $3,985 in the third quarter
of 1996 to $6,026 in the third quarter of 1997. This increase of $2,041 (51%) is
primarily due to more staff time being required to manage the Company's
operations.
I-6
First Nine Months in 1997 Compared to First Nine Months in 1996
Oil and gas sales for the first nine months decreased from $135,343 in 1996 to
$80,760 in 1997. This represents a decrease of $54,583 (40%). Oil sales
decreased by $23,966 (35%). A 26% decrease in oil production reduced sales by
$17,831. A 12% decrease in the average net oil sales price reduced oil sales an
additional $6,135. Gas sales decreased by $30,617 (45%). A 23% decrease in the
average gas sales price decreased sales by $10,991. A 29% decrease in gas
production reduced sales by an additional $19,626. The decrease in average oil
and gas sales prices were primarily a result of relatively higher net profits
royalty paid on the Bagley acquisition, which incurred higher lease operating
expenses in 1996. The decreases in oil and gas production were primarily the
result of natural production declines, which were especially pronounced on the
Lake Decade acquisition.
Lease operating expenses decreased from $55,281 in the first nine months of 1996
to $41,173 in the first nine months of 1997. The decrease of $14,108 (26%) is
primarily due to workover charges incurred on the Bagley acquisition in the
third quarter of 1996 coupled with the decreases in oil and gas production,
noted above.
Depreciation and depletion expense decreased from $24,748 in the first nine
months of 1996 to $15,444 in the first nine months of 1997. This represents a
decrease of $9,304 (38%). The changes in production, noted above, reduced
depreciation and depletion expense by $6,785. A 14% decrease in the depletion
rate reduced depreciation and depletion expense by an additional $2,519. The
rate decrease was primarily due to relatively higher production from the Bagley
acquisition which has a relatively lower depletion rate.
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 $538,207 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.
I-7
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 drillings 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 writedowns taken by
the Company in the first quarter of 1996.
General and administrative expenses increased from $13,265 in the first nine
months of 1996 to $13,829 in the first nine months of 1997. This increase of
$564 (4%) 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 after the payment of
its debt obligations. 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 of the Limited Partners of the Company was held on October 28,
1997, during which votes were cast by the Limited Partners regarding the
proposed dissolution and liquidation of this partnership. A majority vote to
liquidate and dissolve the partnership was received as follows:
Enex Oil & Gas Income Program IV, Series 3
For Against
Liquidation Liquidation Abstain
------------------- ------------------- ------------------
55.43% 7.08% 3.88%
The properties owned by the partnership will be sold and any proceeds remaining
after the payment of all the partnership's debt will be distributed to the
limited partners. This partnership should be dissolved during the fourth quarter
of 1997.
As of September 30, 1997, the Company had no material commitments for capital
expenditures. The Company does not intend to engage in any significant
developmental drilling activity.
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 OIL & GAS INCOME
PROGRAM IV - 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