SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-13546
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APACHE OFFSHORE INVESTMENT PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Delaware 41-1464066
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Suite 100, One Post Oak Central
2000 Post Oak Boulevard, Houston, TX 77056-4400
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 296-6000
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE OFFSHORE INVESTMENT PARTNERSHIP
BALANCE SHEET
<TABLE>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,113,711 $ 104
Oil and gas revenue receivable 2,157,480 2,744,988
Receivable from Apache 434,039 --
Drilling advances -- 8,570
------------- ------------
5,705,230 2,753,662
------------- ------------
OIL AND GAS PROPERTIES, on the basis
of full cost accounting:
Proved properties 162,262,271 161,821,838
Less - accumulated depreciation,
depletion and amortization (154,449,899) (151,089,712)
------------- ------------
7,812,372 10,732,126
------------- ------------
$ 13,517,602 $ 13,485,788
============= ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Distribution payable $ 4,198,903 $ --
Accrued exploration and development 138,725 426,930
Other accrued expenses 445,169 207,422
Payable to Apache Corporation -- 69,824
------------ ------------
4,782,797 704,176
------------ ------------
LONG-TERM DEBT 2,550,000 7,310,000
------------ ------------
PARTNERS' CAPITAL:
Managing Partner 982,145 966,580
Investing Partners (1,199.7 and 1,212.3 units
outstanding, respectively) 5,202,660 4,505,032
------------ ------------
6,184,805 5,471,612
------------ ------------
$ 13,517,602 $ 13,485,788
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
1
<PAGE>
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF INCOME
(Unaudited)
<TABLE>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
-------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 3,414,308 $ 3,132,379 $ 13,231,038 $ 8,946,091
Interest income 22,607 -- 22,607 --
----------- ---------- ----------- ------------
3,436,915 3,132,379 13,253,645 8,946,091
------------ ---------- ----------- ------------
EXPENSES:
Depreciation, depletion
and amortization 825,367 1,173,405 3,360,187 3,091,587
Lease operating 269,154 252,048 980,800 844,921
Administrative 132,499 132,500 397,499 397,500
Financing costs:
Interest expense 84,420 149,757 295,857 444,724
Amortization of deferred
financing costs -- -- -- 14,583
------------ ------------ ------------ ------------
1,311,440 1,707,710 5,034,343 4,793,315
------------ ----------- ---------- ------------
NET INCOME $ 2,125,475 $ 1,424,669 $ 8,219,302 $4,152,776
============ ============ ============ ============
Allocated to:
Managing Partner $ 504,691 $ 456,372 $ 1,968,718 $1,217,925
Investing Partners 1,620,784 968,297 6,250,584 2,934,851
------------ ------------ ------------ ------------
$ 2,125,475 $ 1,424,669 $ 8,219,302 $4,152,776
============ ============ ============ ============
NET INCOME PER WEIGHTED
AVERAGE INVESTING PARTNER UNIT $ 1,351 $ 788 $ 5,177 $ 2,377
============ ============ ============ ============
WEIGHTED AVERAGE INVESTING PARTNER
UNITS OUTSTANDING 1,199.7 1,229.1 1,207.4 1,234.8
============ ============ ============ ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
2
<PAGE>
APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
For the Nine Months
Ended September 30,
------------------------------
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 8,219,302 $ 4,152,776
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 3,360,187 3,091,587
Amortization of deferred financing costs -- 14,583
Changes in operating assets and liabilities:
Decrease in revenue receivable 587,508 25,820
Increase in other accrued expenses 237,747 1,728
Increase in receivable from Apache Corporation (503,863) (557,418)
------------ ------------
Net cash provided by operating activities 11,900,881 6,729,076
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (440,433) (2,881,535)
Non-cash portion of oil and gas property additions (288,205) 507,331
Decrease (increase) in drilling advances 8,570 (233,458)
------------ ------------
Net cash used by investing activities (720,068) (2,607,662)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of Partnership Units (141,732) (108,125)
Distributions to Managing Partner, net (1,953,153) (1,390,769)
Distributions to Investing Partners (1,212,321) (1,857,520)
Payments on long-term debt (4,760,000) (765,000)
------------ ------------
Net cash used by financing activities (8,067,206) (4,121,414)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,113,607 --
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 104 104
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,113,711 $ 104
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 244,855 $ 451,024
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
3
<PAGE>
APACHE OFFSHORE INVESTMENT PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The financial statements included herein have been prepared by the
Apache Offshore Investment Partnership (Partnership), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal, recurring nature.
Certain information, accounting policies, and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations, although the Partnership believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and
the summary of significant accounting policies and notes thereto included
in the Partnership's latest annual report on Form 10-K.
1. OTHER ACCRUED EXPENSES
Accrued expenses payable at September 30, 1996, primarily represented
operating costs accrued in August and September that will be paid in
October.
2. PAYABLE TO/RECEIVABLE FROM APACHE
The payable to/receivable from Apache Corporation (Apache) represents
the net result of the Investing Partners' revenue and expenditure
transactions in the current month. Cash in this amount will normally be
transferred to/from Apache in the following month after the Partnership's
transactions are processed and the net results of operations are
determined.
3. RIGHT OF PRESENTMENT
In February 1994, an amendment to the Partnership Agreement created a
right of presentment under which all Investing Partners now have a limited
and voluntary right to offer their Units to the Partnership twice each year
to be repurchased for cash. The first right of presentment offer for 1996
of $10,698 per Unit, plus interest to the date of payment, was made to the
Investing Partners on April 29, 1996. As a result, the Partnership
acquired 12.667 Units for a total of $141,732 in cash. A second right of
presentment offer of $10,572 per Unit, plus interest to the date of
payment, was made to the Investing Partners on October 30, 1996, based on a
valuation date of June 30, 1996. The Partnership is not in a position to
predict how many Units will be presented for repurchase under the October
1996 offer and cannot, at this time, determine if the Partnership will have
sufficient funds available for repurchasing Units. The Amended Partnership
Agreement contains limitations on the number of Units that the Partnership
can repurchase, including a limit of 10 percent of the outstanding Units on
an annual basis.
4
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Partnership realized record net income per weighted average
Investing Unit and the second best cash flow from operating activities for
the nine months ended September 30, 1996, as compared with any other nine
month period in its history. Solid increases in both crude oil and natural
gas prices contributed to the Partnership's improved results. The average
realized natural gas price for the first nine months of 1996 was the
highest in the last ten years. As a result of the improved cash flow, the
Partnership reduced outstanding debt to $2.6 million and, in October 1996,
made a $3,500 per-Unit distribution.
RESULTS OF OPERATIONS
Net Income and Revenue
The Partnership reported net income of $2.1 million in the third
quarter of 1996, versus $1.4 million in the prior year period. Earnings
per Investing Partner Unit increased 71 percent, to $1,351 from $788.
Higher natural gas and crude oil prices and lower DD&A and financing costs
led the way to the Partnership's improved results.
For the first nine months of 1996, net income of $8.2 million, or
$5,177 per Investing Partner Unit, increased 98 percent and 118 percent,
respectively, from $4.2 million and $2,377 per Unit in the same period last
year. Impacting 1996 results were strong natural gas and crude oil prices
and lower financing costs, partially offset by slight increases in
depreciation, depletion and amortization (DD&A) and lease operating
expenses. Net income per Investing Partner Unit was also positively
impacted by a two percent decrease in the weighted average Units
outstanding.
Revenues increased ten percent, from $3.1 million in the third quarter
of 1995, to $3.4 million for the same period in 1996. Natural gas and
crude oil sales contributed 82 percent and 17 percent, respectively, to the
Partnership's total revenue in the third quarter, with the remainder
attributable to interest income.
For the first nine months of 1996, revenues increased 48 percent, to
$13.3 million compared to the same period in 1995, with natural gas and
crude oil contributing 80 percent and 19 percent, respectively, to total
revenue. While oil and gas prices are currently higher than amounts
realized a year ago, the Partnership is not in a position to predict future
prices.
The Partnership's oil and gas production volume and price information
is summarized in the following tables:
<TABLE>
For the Quarter Ended September 30, For the Nine Months Ended September 30,
---------------------------------- --------------------------------------
Increase Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Gas Volume - Mcf per day 13,950 16,358 (15%) 16,208 15,844 2%
Average Gas Price - per Mcf $ 2.20 $ 1.45 52% $ 2.40 $ 1.48 62%
Oil Volume - Barrels per day 297 640 (54%) 472 553 (15%)
Average Oil Price - Per barrel $21.45 $16.10 33% $ 19.90 $ 16.88 18%
</TABLE>
5
<PAGE>
Third Quarter 1996 Compared to Third Quarter 1995
Natural gas sales for the third quarter of 1996 totaled $2.8 million,
30 percent higher than those recorded in the third quarter of 1995. The
increase was driven by higher average realized natural gas prices, which
increased 52 percent, favorably impacting revenue by $1 million. Partially
offsetting this increase was a 15-percent decline in natural gas production
for the third quarter from the same period last year, reducing revenues by
$.3 million. Third quarter 1996 gas sales volumes were reduced by the
Partnership selling less than its entitlement at South Pass 83, Ship Shoal
259 and North Padre 959, where make-up volumes were taken by under-produced
working interest owners, and by natural declines in production at Matagorda
681, South Pass 83, Ship Shoal 259 and South Timbalier 295.
The Partnership's crude oil sales for the third quarter totaled $.6
million, a 38-percent decrease from the third quarter of 1995. The average
realized price for the third quarter increased 33 percent when compared to
the same period last year, favorably impacting revenues by $.1 million.
Offsetting the benefit of higher crude oil prices was a 54-percent decrease
in production versus third quarter 1995, reducing sales by $.5 million.
This decrease is primarily a result of the Partnership selling less than
its entitlement on South Timbalier 295 in order to make-up for previously
over-produced volumes resulting from an allocation error by the operator.
Year-to-Date 1996 Compared to Year-to-Date 1995
Gas sales for the first nine months of 1996 of $10.7 million increased
$4.3 million, or 67 percent, when compared to the same period in 1995.
Average realized gas prices increased $.92 per Mcf, or 62 percent, when
compared with the first nine months of 1995, favorably impacting revenues
by $4.1 million. In addition to the increased revenues provided by higher
gas prices, gas production for the first nine months of 1996 increased by
two percent when compared to the same period in 1995, adding $.2 million in
revenues. Production increases in 1996 resulting from the capital workover
program completed at the North Padre Island 959, Ship Shoal 259, South
Timbalier 295 and High Island A-6 properties in the second half of 1995
were partially offset by natural declines at Matagorda 681 and South
Timbalier 295, and the Partnership selling less than its entitlement at
North Padre 959, South Pass 83 and Ship Shoal 259, where make-up volumes
were allocated to under-produced third parties.
For the nine months ended September 30, 1996, oil sales increased one
percent, to $2.6 million, from the same period last year. The
Partnership's oil sales revenues were favorably impacted by an 18-percent
increase in realized prices, contributing $.4 million. Offsetting the
increase in revenues from higher prices was a 15-percent decline in oil
production. The decreases in sales volumes resulted from make-up of over-
delivered production by third parties in the third quarter of this year and
from lower production due to natural decline at South Timbalier 295.
Given the small number of producing wells owned by the Partnership,
and the fact that offshore wells tend to decline on a steeper curve than
onshore wells, the Partnership's future production will be subject to more
volatility than those entities with greater reserves and longer-lived
properties.
OPERATING EXPENSES
The Partnership's DD&A expense for the third quarter of 1996 decreased
30 percent from the same period last year as a result of lower production
on an equivalent barrel basis. However, DD&A expense for the first nine
months increased nine percent when compared to the same period a year ago.
The Partnership's DD&A rate, expressed as a percentage of sales, was 25
percent during the first nine months of 1996, a decrease from 35 percent in
1995. The year-to-year decrease in DD&A rate is primarily a result of
improved pricing for natural gas and crude oil and positive reserve
revisions at year-end 1995.
6
<PAGE>
Lease operating expense (LOE) for the third quarter increased seven
percent when compared to the third quarter of 1995. LOE of $1.0 million
increased by $.1 million, or 16 percent, during the first nine months of
1996 compared to the first nine months of 1995. These increases were
primarily the result of workover expenses recorded on South Timbalier 295
in the first quarter of this year and lower credits to LOE attributable to
the High Island A-6 platform throughout the year. The Partnership, through
its ownership in the platform, receives credits against LOE for fees
charged to third parties whose gas is processed at the platform. In 1996,
the third party volumes have declined, resulting in lower processing
credits against LOE to the Partnership.
Financing costs decreased 44 percent in the third quarter and 36
percent in the first nine months, when compared to the same periods in
1995. The decrease in financing costs was primarily a result of the
reduction in the average debt outstanding and the weighted average interest
rate from $8.7 million and 6.79 percent in the first nine months of 1995 to
$2.6 million and 6.22 percent, respectively, for the comparable period in
1996.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
Capital Resources and Liquidity
The Partnership's primary capital resources are net cash provided by
operating activities and proceeds from financing activities.
Net cash provided by operating activities was $11.9 million for the
first nine months of 1996, an increase of 77 percent from a year ago,
reflecting improved oil and gas pricing. Future cash flows will be
influenced by product prices and production and are not presently
ascertainable.
During September 1996, based on its projection of future needs, the
Partnership reduced its available commitment under its reducing revolving
credit facility by $5.1 million to reduce fees. At September 30, 1996, the
available commitment under the Partnership's reducing revolving credit
facility was $5.1 million, of which $2.6 million was outstanding. The
available commitment reduces by $1.3 million per quarter, beginning in
October 1997, with the outstanding loan balance to be repaid by July 1998.
During the first nine months of 1996, debt was reduced by $4.8 million,
primarily resulting from increased cash flow and limited capital
expenditures.
Apache is contingently liable for obligations of the Partnership and
is subject to certain requirements under the terms of the credit facility.
Apache was in compliance with such covenants at September 30, 1996. The
credit facility had an average rate of interest of 6.20 percent during the
third quarter of 1996 which compares to an average rate of 6.71 percent a
year ago. The Partnership will attempt to maintain availability under its
credit facility as cushion for unforeseen expenditures and contingencies.
It is expected that the net cash provided by operating activities, the
cash available under the Partnership's credit facility and the Managing
Partner contributions will be sufficient to meet the Partnership's
liquidity needs through the end of 1996. However, in the event short-term
operating cash requirements are greater than the Partnership's financial
resources, the Partnership will seek short-term interest-bearing advances
from the Managing Partner.
Capital Commitments
The Partnership's primary needs for cash are for operating expenses,
repayment of principal and interest on outstanding debt, drilling and
recompletion expenditures, distributions to Investing Partners and the
purchase of Units offered by Investing Partners under the right of
presentment.
7
<PAGE>
As provided in the Amended Partnership Agreement, a second right of
presentment offer of $10,572 per Unit, plus interest to the date of
payment, was made to Investing Partners on October 30, 1996, based on a
valuation date of June 30, 1996. The Partnership is not in a position to
predict how many Units will be presented for repurchase during 1996 and
cannot, at this time, determine if the Partnership will have sufficient
funds available to repurchase Units.
During the first nine months of 1996, the Partnership's oil and gas
property additions totaled $.4 million. These additions largely related to
recompletions performed at South Pass 83 and Ship Shoal 259. Based on
information supplied by the operators of the Partnership properties, the
Partnership estimates $.7 million of oil and gas property additions will be
incurred in the last quarter of 1996. The anticipated capital expenditures
relate to planned development activity at South Timbalier 295, which
include the drilling of a water injection well, a sidetrack to the A-1 well
and a twin to the A-2 well. Such estimates may change based on realized
prices, drilling results or changes to the plans by the operator.
The Partnership made a $1,000 per-Unit distribution during March 1996,
and a $3,500 distribution on October 1, 1996. The amount of future
distributions will be dependent on actual and expected production levels,
realized and expected oil and gas prices, debt service requirements and
expected drilling and recompletion expenditures.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 ("PSLRA")
The foregoing discussion and analysis contains certain
"forward-looking statements" as defined by the PSLRA including, without
limitation, discussions as to expectations, beliefs, plans, objectives and
future financial performance, and assumptions underlying or concerning matters
discussed reflecting management's current expectations of the manner in
which the various factors discussed therein may affect the Partnership's
business in the future. Any matters that are not historical facts are
forward-looking and, accordingly, involve estimates, assumptions and
uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. There is
no assurance that the Partnership's expectations will be realized or that
unexpected events will not have an adverse impact on the Partnership's
business.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits.
27.1 Financial Data Schedule.
b. Reports on Form 8-K - None.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
APACHE OFFSHORE INVESTMENT PARTNERSHIP
By: Apache Corporation, General Partner
Dated: November 12, 1996 /s/ Mark A. Jackson
------------------------------------------
Mark A. Jackson
Vice President and Chief Financial Officer
Dated: November 12, 1996 /s/ Thomas L. Mitchell
------------------------------------------
Thomas L. Mitchell
Controller and Chief Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000727538
<NAME> ART.5 FDS FOR THIRD QUARTER 10-Q
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1,000
<CASH> 3,113,711
<SECURITIES> 0
<RECEIVABLES> 2,591,519
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,705,230
<PP&E> 162,262,271
<DEPRECIATION> (154,449,899)
<TOTAL-ASSETS> 13,517,602
<CURRENT-LIABILITIES> 4,782,797
<BONDS> 2,550,000
0
0
<COMMON> 0
<OTHER-SE> 6,184,805
<TOTAL-LIABILITY-AND-EQUITY> 13,517,602
<SALES> 13,231,038
<TOTAL-REVENUES> 13,253,645
<CGS> 4,340,987
<TOTAL-COSTS> 4,340,987
<OTHER-EXPENSES> 397,499
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 295,857
<INCOME-PRETAX> 8,219,302
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,219,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,219,302
<EPS-PRIMARY> 5,177
<EPS-DILUTED> 5,177
</TABLE>
