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 CONSOLIDATED PARTNERS, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0508488
(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 No x
Transitional Small Business Disclosure Format (Check one):
Yes No x
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENEX CONSOLIDATED PARTNERS, L.P.
BALANCE SHEET
- -------------------------------------------------------------------------------
September 30,
ASSETS 1997
------------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 514,101
Accounts receivable - oil & gas sales 1,683,674
Receivable from litigation settlement 280,050
Other current assets 18,799
----------------
Total current assets 2,496,624
----------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 11,508,757
Less accumulated depreciation and depletion 279,140
----------------
Property, net 11,229,617
----------------
TOTAL $ 13,726,241
================
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 371,180
LIMITED PARTNERS' CAPITAL SUBJECT
TO REDEMPTION 13,308,804
GENERAL PARTNER CAPITAL 46,257
----------------
TOTAL $ 13,723.241
================
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
I-1
ENEX CONSOLIDATED PARTNERS, L.P.
COMBINED HISTORICAL 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 $ 2,425,763 $ 2,802,679 $ 7,634,183 $ 8,068,350
Gas plant sales 195,287 258,306 806,692 757,716
------------------ ----------------- ----------------- -------------
Total revenues 2,621,050 3,060,985 8,440,875 8,826,066
------------------ ----------------- ----------------- -------------
EXPENSES:
Depreciation, depletion and amortization 279,145 723,832 1,327,558 2,112,282
Impairment of property - - - 2,315,081
Lease operating expenses 899,257 774,177 2,643,098 2,577,396
Gas plant purchases 172,406 169,456 611,776 520,431
Production taxes 135,644 158,420 424,225 455,583
General and administrative:
Allocated from general partner 207,743 366,435 966,041 1,258,496
Direct expenses 94,731 12,807 153,080 96,154
------------------ --------------- ----------------- -------------
Total expenses 1,788,926 2,205,127 6,125,778 9,335,423
------------------ ----------------- ----------------- -------------
INCOME (LOSS) FROM OPERATIONS 832,124 855,858 2,315,097 (509,357)
------------------ ----------------- ----------------- -------------
OTHER INCOME (EXPENSE):
Gain on sale of property - 3,012 5,940 140,722
Interest expense - (424) - (2,356)
Interest income 14,359 1,255 15,624 8,800
Other income 1,100 675 22,100 675
----------------- ----------------- ---------------- -------------
Total other income 15,459 4,518 43,664 147,841
------------------ ----------------- ----------------- -------------
NET INCOME (LOSS) $ 847,583 $ 860,376 $ 2,358,761 $ (361,516)
================== ================= ================= =============
See accompanying notes to financial statements.
- -----------------------------------------------------------------------------
I-2
ENEX CONSOLIDATED PARTNERS, L.P.
COMBINED HISTORICAL STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
LIMITED
PARTNERS'
GENERAL CAPITAL
PARTNER'S SUBJECT TO
TOTAL CAPITAL REDEMPTION
------------------- --------------- ---------------
Balance, January 1, 1996 $ 15,984,697 $ 1,664,903 $ 14,319,794
Cash Distributions (2,744,270) (279,323) (2,464,947)
Net Income 1,009,912 342,661 667,251
------------------- --------------- ---------------
Balance, December 31, 1996 14,250,339 1,728,241 12,522,098
Cash Distributions (3,564,417) (512,192) (3,052,225)
Net Income 2,358,761 202,748 2,156,013
------------------- --------------- ---------------
Combined Historical Balance, September 30, 1997 13,044,683 1,418,797 11,625,886
Purchase Accounting Adjustments:
Adjustment to Record Property at
Fair Market Value (1,561,322) - (1,561,322)
Recognize Conversion of Payable to
General Partner to Limited Partner Capital 2,420,858 - 2,420,858
Recognize Conversion of General Partner
Capital to Limited Partner Capital - (1,372,540) 1,372,540
Expenses of Consolidation (549,158) - (549,158)
------------------- --------------- ---------------
Consolidated Balance, September 30, 1997 $ 13,355,061 $ 46,257 $ 13,308,804
=================== =============== ===============
See accompanying notes to financial statements.
- -------------------------------------------------------------------------------
I-3
ENEX CONSOLIDATED PARTNERS, L.P.
COMBINED HISTORICAL STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
-----------------------------------
September 30, September 30,
1997 1996
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,358,761 $ (361,516)
---------------- ----------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 1,327,558 2,112,282
Impairment of property - 2,315,081
Gain on sale of property (5,940) (140,722)
(Increase) decrease in:
Accounts receivable - oil & gas sales 565,705 (331,904)
Other current assets 172,452 (11,890)
Increase (decrease) in:
Accounts payable (528,739) (237,609)
Payable to general partner (501,234) (1,208,471)
---------------- ----------------
Total adjustments 1,029,802 2,496,767
---------------- ----------------
Net cash provided by operating activities 3,388,563 2,135,251
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 5,940 169,710
Property additions - development costs (239,581) (698,119)
---------------- ----------------
Net cash used by investing activities (231,541) (528,409)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (3,564,417) (1,755,216)
---------------- ----------------
NET (DECREASE) IN CASH (407,395) (148,374)
--------------- ----------------
CASH AT BEGINNING OF YEAR 923,596 703,721
---------------- ----------------
CASH AT END OF PERIOD $ 516,201 $ 555,347
================ ================
See accompanying notes to financial statements.
- -------------------------------------------------------------------------------
I-4
ENEX CONSOLIDATED PARTNERS, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. Effective June 30, 1997, Enex Consolidated Partners, L.P. (the
"Company") was formed from the consolidation of thirty-four (34)
partnerships consisting of Enex Program I Partners, L.P., four
partnerships in Enex Oil & Gas Income Program II, the eight
partnerships in Enex Oil & Gas Income Program III, six partnerships in
Enex Oil & Gas Income Program IV, the five partnerships in Enex Oil &
Gas Income Program V, Enex Oil & Gas Income Program VI - Series 1,
L.P., the three partnerships in Enex Income and Retirement Fund, three
partnerships in Enex 88-89 Income and Retirement Fund, and the three
partnerships in Enex 90-91 Income and Retirement Fund (collectively
the "Partnerships").
The consolidation of the Company was recorded using the purchase method
of accounting; as such, assets are recorded at their fair market value.
The statements of operations and cash flows, in the accompanying
financial statements, are presented on a combined historical basis. The
balance sheet has been adjusted to reflect the conversion of the
payable to the general partner and the general partner's capital
account into limited partner capital units. The general partner has a
4.11% revenue interest in addition to its proportional interest as a
limited partner of 52.71%.
2. 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.
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
Partnerships assessed properties on an aggregate basis. Upon adoption
of SFAS 121, the Partnerships 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 Combined entities recognized a
non-cash impairment provision of $2,315,081 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.
I-5
4. Pro forma information, assuming that the consolidation occurred January
1, 1997 and January 1, 1996, respectively, is as follows:
Nine Months ended Nine Months ended
September 30, 1997 September 30, 1996
Revenues $ 8,440,875 $ 8,826,077
Income from Operations $ 2,418,775 $ 1,993,910
Net Income $ 2,462,439 $ 2,141,751
5. Effective January 1, 1996, the Company sold its interest in the Nunley
Ranch A acquisition for $2,600. The Company recognized a gain of
$2,600 on the sale. Effective February 1, 1996, the Company sold its
interests in the Credo acquisition for $105,000. A gain of $6,555 was
recognized on the sale. Effective May 1, 1996, the Company sold its
interests in the Comite acquisition for $55,100. A gain of $21,649 was
recognized on the sale. Effective April 1, 1996, the Company sold its
interests in the Kidd wells in the Enexco acquisition for $64,000. A
gain of $61,648 was recognized on the sale. Effective June 1, 1996,
the Company sold its interests in the Harper well in the RIC
acquisition for $55,616. A gain of $45,258 was recognized on the sale.
Effective August 1, 1996 the Company sold its interest in the Rigney B
acquisition for $1,640, and its interest in the Spider Lake 3-2 well
in the Michigan acquisition for $5,360. A gain of $209 and $2,803 was
recognized respectively. The impact of these sales on current and
future net revenues are not expected to be material.
Effective January 1, 1997, the Company sold its interests in the
Perkins well in the Burkholder acquisition for $5,940. A gain of $5,940
was recognized on this sale.
I-6
Item 2. Management's Discussion and Analysis or Plan of Operations.
Third Quarter 1996 Compared to Third Quarter 1997
Oil and gas sales for the third quarter decreased from $2,802,679 in 1996 to
$2,425,763 in 1997. This represents a decrease of $376,916 (13%). Oil sales
decreased by $344,553 (20%). A 6% decline in oil production reduced sales by
$112,380. A 16% decrease in the average oil sales price reduced sales by an
additional $232,173. Gas sales decreased by $32,363 (3%). An 8% decrease in gas
production decreased sales by $84,634. This decrease was partially offset by a
5% increase in the average gas sales price. The changes in the average oil and
gas sales price correspond with the prices in the overall market for oil and
gas. The decrease in oil production was primarily due to natural production
declines. The decrease in gas production was due to natural production declines
which were especially pronounced on the Staley and East Sevens acquisitions.
Sales of gas plant products decreased to $195,287 in the third quarter of 1997
from $258,306 in the third quarter of 1996. This represents a decrease of
$63,019 or 24%. A 4% decrease in the production of gas plant products reduced
sales by $10,191. A 21% decrease in the average sales price of gas plant
products reduced sales by an additional $52,828. The decrease in production of
gas plant products was primarily the result of natural production declines. The
decrease in the average sales price of gas plant product corresponds with lower
prices in the overall market for the sale of gas plant products.
Lease operating expenses increased from $774,177 in the third quarter of 1996 to
$899,257 in the third quarter of 1997. The increase of $125,083 (16%) is
primarily due to the higher operating costs on the Speary and Muldoon
acquisitions.
Depreciation and depletion expense decreased from $723,832 in the third quarter
of 1996 to $279,145 in the third quarter of 1997. This represents a decrease of
$444,687 (61%). The changes in production, noted above, reduced depreciation and
depletion expense by $49,848. A 59% decrease in the depletion rate reduced
depreciation and depletion expense by an additional $394,839. The rate decrease
was primarily due to the lower property basis resulting from the use of the
purchase accounting method to record Consolidation on June 30, 1997 at the
properties fair market value, coupled with upward revisions of the oil and gas
reserves during December 1996.
Effective August 1, 1996 the Company sold its interest in the Rigney B
acquisition for $1,640, and its interest in the Spider Lake 3-2 well in the
Michigan acquisition for $5,360. A gain of $209 and $2,803 was recognized
respectively.
General and administrative expenses decreased from $379,242 in the third quarter
of 1996 to $302,474 in the third quarter of 1997. This decrease of $76,768 (20%)
is primarily due to less staff time being required to manage the Company's
operations partially offset by an $82,030 increase in direct expenses due to
start-up costs incurred in the third quarter of 1997.
I-7
First Nine Months in 1997 Compared to First Nine Months in 1996
Oil and gas sales for the first nine months decreased from $8,068,350 in 1996 to
$7,634,183 in 1997. This represents a decrease of $434,167 (5%). Oil sales
decreased by $777,747 (15%). A 12% decrease in oil production reduced sales by
$646,065. A 3% decrease in the average oil sales price decreased oil sales an
additional $131,682. Gas sales increased by $343,580 (12%). A 12% increase in
the average gas sales price increased sales by $356,395. This was partially
offset by a 1% decrease in gas production. The changes in the average oil and
gas sales price correspond with changes in the overall market for the sale of
oil and gas. The price of oil was lower and gas prices were higher in 1997 vs
1996. The decreases in oil and gas production were primarily the result of
natural production declines.
Gas plant sales increased from $757,716 in the third quarter of 1996 to $806,692
in the third quarter of 1997. This represents an increase of $48,926 or 6%. An
11% increase in the average gas plant sales price increased sales by $72,661.
This increase was partially offset by a 4% decrease in the production of gas
plant product.
Lease operating expenses increased from $2,577,396 in the first nine months of
1996 to $2,643,098 in the first nine months of 1997. The increase of $65,702
(2%) is primarily due to higher operating costs as a result of workovers
performed on the Speary and Muldoon acquisitions in 1997.
Depreciation and depletion expense decreased from $2,112,282 in the first nine
months of 1996 to $1,327,558 in the first nine months of 1997. This represents a
decrease of $784,724 (37%). The changes in production, noted above, reduced
depreciation and depletion expense by $141,621. A 33% decrease in the depletion
rate reduced depreciation and depletion expense by an additional $643,103. The
rate decrease was primarily due to relatively higher production from properties
with a lower depletion rate, coupled with upward revisions of the oil and gas
reserves during December 1996 and the lower property basis resulting from the
use of the purchase accounting method to record the Consolidation on June 30,
1997 at the properties fair market value.
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 Partnerships assessed properties on an aggregate basis. Upon
adoption of SFAS 121, the Partnerships 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 Combined entities recognized a non-cash impairment
provision of $2,315,081 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.
I-8
Effective January 1, 1996, the Company sold its interest in the Nunley Ranch A
acquisition for $2,600. The Company recognized a gain of $2,600 on the sale.
Effective February 1, 1996, the Company sold its interests in the Credo
acquisition for $105,000. A gain of $6,555 was recognized on the sale. Effective
May 1, 1996, the Company sold its interests in the Comite acquisition for
$55,100. A gain of $21,649 was recognized on the sale. Effective April 1, 1996,
the Company sold its interests in the Kidd wells in the Enexco acquisition for
$64,000. A gain of $61,648 was recognized on the sale. Effective June 1, 1996,
the Company sold its interests in the Harper well in the RIC acquisition for
$55,616. A gain of $45,258 was recognized on the sale. Effective August 1, 1996
the Company sold its interest in the Rigney B acquisition for $1,640, and its
interest in the Spider Lake 3-2 well in the Michigan acquisition for $5,360. A
gain of $209 and $2,803 was recognized respectively The impact of these sales on
current and future net revenues are not expected to be material.
Effective January 1, 1997, the Company sold its interests in the Perkins well in
the Burkholder acquisition for $5,940. A gain of $5,940 was recognized on this
sale.
General and administrative expenses decreased from $1,354,650 in the first nine
months of 1996 to $1,119,121 in the first nine months of 1997. This decrease of
$235,529 (17%) is primarily due to less staff time being required to manage the
Company's operations as a result of the Consolidation of the Partnerships.
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. 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 provided by operating, financing
and investing 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.
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-9
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 CONSOLIDATED PARTNERS, 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