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 June 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
---------------- -----------------
Commission file number 0-13546
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APACHE OFFSHORE INVESTMENT PARTNERSHIP
- ---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
4
1-1464066
- ------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identific
ation Number)
Suite 100, One Post Oak Central
2000 Post Oak Boulevard, Houston, TX
7
7056-4400
- ---------------------------------------------------------------------------
(Address of Principal Executive Offices)
(
Zip Code)
Registrant's Telephone Number, Including Area Code
(7
13) 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
---- ----
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE OFFSHORE INVESTMENT PARTNERSHIP
BALANCE SHEET
<TABLE>
June 30, December 31,
1996 1995
------------- --------------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,000,104 $ 104
Oil and gas revenue receivable 2,747,584 2,744,988
Drilling advances -- 8,570
------------- ------------
3,747,688 2,753,662
------------- ------------
OIL AND GAS PROPERTIES, on the basis
of full cost accounting:
Proved properties 162,003,789 161,821,838
Less - accumulated depreciation,
depletion and amortization (153,624,532) (151,089,712)
------------- ------------
8,379,257 10,732,126
------------- ------------
$ 12,126,945 $ 13,485,788
============= ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accrued exploration and development $ 46,804 $ 426,930
Other accrued expenses 346,228 207,422
Payable to Apache Corporation 196,670 69,824
------------ ------------
589,702 704,176
------------ ------------
LONG-TERM DEBT 2,550,000 7,310,000
------------ ------------
PARTNERS' CAPITAL:
Managing Partner 1,206,464 966,580
Investing Partners (1,199.7 and 1,212.3 units
outstanding, respectively) 7,780,779 4,505,032
------------ ------------
8,987,243 5,471,612
------------ ------------
$ 12,126,945 $ 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 Six Months
Ended June 30, Ended June 30,
-------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 4,802,492 $ 3,008,827 $ 9,816,730 $ 5,813,712
------------ ------------ ------------ ------------
EXPENSES:
Depreciation, depletion
and amortization 1,231,494 1,042,555 2,534,820 1,918,182
Lease operating 367,811 356,814 711,646 592,873
Administrative 131,557 132,501 265,000 265,000
Financing costs:
Interest expense 74,798 148,724 211,437 294,967
Amortization of deferred
financing costs -- -- -- 14,583
------------ ------------ ------------ ------------
1,805,660 1,680,594 3,722,903 3,085,605
------------ ------------ ------------ ------------
NET INCOME $ 2,996,832 $ 1,328,233 $ 6,093,827 $ 2,728,107
============ ============ ============ ============
Allocated to:
Managing Partner $ 719,897 $ 380,856 $ 1,464,027 $ 761,553
Investing Partners 2,276,935 947,377 4,629,800 1,966,554
------------ ------------ ------------ ------------
$ 2,996,832 $ 1,328,233 $ 6,093,827 $ 2,728,107
============ ============ ============ ============
NET INCOME PER WEIGHTED
AVERAGE INVESTING
PARTNER UNIT $ 1,882 $ 766 $ 3,822 $ 1,589
============ ============ ============ ============
WEIGHTED AVERAGE INVESTING PARTNER
UNITS OUTSTANDING 1,210.1 1,237.0 1,211.2 1,237.7
============ ============ ============ ===========
</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 Six Months
Ended June 30,
------------------------------
1996 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 6,093,827 $ 2,728,107
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 2,534,820 1,918,182
Amortization of deferred financing costs -- 14,583
Changes in operating assets and liabilities:
(Increase) decrease in revenue receivable (2,596) 159,755
Increase in accrued expenses 138,806 2,090
Increase in payable to Apache Corporation 126,846 627,832
------------ ------------
Net cash provided by operating activities 8,891,703 5,450,549
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (181,951) (1,864,487)
Non-cash portion of oil and gas property additions (380,126) 324,065
Decrease (increase) in drilling advances 8,570 (319,828)
------------ ------------
Net cash used by investing activities (553,507) (1,860,250)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of Partnership Units (141,732) (86,018)
Distributions to Managing Partner, net (1,224,143) (881,761)
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 (7,338,196) (3,590,299)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,000,000 --
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 104 104
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,000,104 $ 104
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 211,437 $ 303,965
============ ============
</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 to 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.
OTHER ACCRUED EXPENSES
Accrued expenses payable at June 30, 1996, primarily represented
operating costs accrued in May and June that will be paid in July.
PAYABLE TO APACHE
The payable to Apache Corporation (Apache) represents the net
estimated 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.
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. 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. However, had all Units been
tendered, the total repurchase price would have been $14.2 million. As
provided in the Amended Partnership Agreement, Investing Partner's will
have a second right of presentment during the fourth quarter of 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 for repurchasing Units.
4
(Page)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Partnership realized record cash flows for the quarter and six
months ended June 30, 1996, as compared with any quarter or six month
period in its history. Earnings were the highest since the first quarter
of 1994, and the quarter ended June 30, 1996 was the Partnership's third
best quarter in its 12 year existence. These results were driven by record
gas prices and increased production, primarily attributable to the
successful workover program the Partnership completed last year. With the
level of cash flow achieved, the Partnership was able to repay $4.8
million, or 65 percent, of its outstanding debt. The Partnership has also,
through June 30, 1996, accumulated $1 million in cash toward funding an
anticipated Limited Partner distribution to be made in the fourth quarter
of 1996.
RESULTS OF OPERATIONS
Net Income and Revenue
The Partnership reported 1996 second quarter net income of $3.0
million, or $1,882 per Investing Partner unit. The 1996 second quarter
income was 126 percent higher than the $1.3 million, or $766 per Investing
Partner unit, reported in the second quarter of 1995. Earnings for the
first six months of 1996 totaled $6.1 million compared to $2.7 million
during the first half of 1995, an increase of 123 percent. The primary
factors contributing to both second quarter and year-to-date earnings were
increases in realized oil and gas prices and gas production.
Oil and gas sales for the second quarter of 1996 increased 60 percent
to $4.8 million compared to the second quarter of 1995. For the first six
months of 1996, oil and gas sales of $9.8 million were 69 percent higher
than the same period in 1995. These increases were due to increases in
average realized oil and gas prices and oil and gas production. 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 For the Six Months Ended
June 30, Ended June 30,
------------------------------ ---------------------------------
1996 1995 Increase 1996 1995 Increase
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Gas Volume - Mcf per day 17,257 15,226 13% 17,345 15,583 11%
Average Gas Price - per Mcf $ 2.45 $ 1.58 55% $ 2.48 $ 1.49 66%
Oil Volume - Barrels per day 504 502 -- 561 509 10%
Average Oil Price - Per barrel $20.64 $17.90 15% $19.48 $17.38 12%
</TABLE>
The average realized gas price for the second quarter of 1996
increased to $2.45 per thousand cubic feet (Mcf), or 55 percent, from the
second quarter of 1995. This increase resulted in a $1.4 million increase in
revenue. For the first six months of 1996, average realized gas prices
were up 66 percent, to $2.48 per Mcf, when compared to the same period in
1995. Sales revenues for the first half of 1996 were positively impacted
by $3.1 million as a result of the increase in average realized gas prices
over the same period last year.
In the second quarter of 1996, a $2.74 per barrel increase in the
Partnership's average realized oil price, as compared to the second quarter
of 1995, positively impacted sales by $.1 million. During the first half
of 1996, oil revenues were positively impacted by $.2 million due to a 12-
percent increase in average realized oil prices, to $19.48 per barrel.
5
(page)
Second quarter gas production increased 13 percent when compared to
the second quarter of 1995. For the first six months of 1996, oil and gas
production increased 10 percent and 11 percent, respectively, when compared
to the same period a year ago. Production increases in the second quarter
and the first half of 1996 are primarily attributable to capital
expenditures made during 1995. During 1995, the Partnership completed a
capital workover program, primarily focused in the North Padre Island, Ship
Shoal 259, South Timbalier 295 and High Island A-6 properties. 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.
DD&A expense increased 32 percent and 18 percent for the first half
and second quarter of 1996, respectively, when compared to the same periods a
year ago. The Partnership's DD&A rate, expressed as a percentage of sales
was 26 percent during the first six months of 1996, a decrease from 33
percent in 1995. The year-to-year decrease in DD&A rate is primarily a
result of increased future gross revenue, reflecting both higher oil and
gas prices, and a lower depreciable property base, upon both of which the
rate is based.
Lease operating expense of $.7 million increased by $.1 million, or 20
percent, during the first six months of 1996 compared to the first six
months of 1995. This increase was primarily the result of workover
expenses recorded on South Timbalier 295 in the first quarter of this year.
Lease operating expense for the second quarter was comparable to the
expense incurred during the second quarter of 1995.
Administrative expense incurred during the first six months of 1996
was comparable to the corresponding periods of 1995. Administrative expenses
for the calendar year 1996 are expected to be comparable to 1995.
Interest expense decreased 28 percent in the first six months and 50
percent in the second quarter, when compared to the same periods in 1995.
These decreases were a result of the reduction in the average debt
outstanding from $8.8 million in the first half of 1995 to $6.4 million 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 $8.9 million for the
first six months of 1996, an increase of 63 percent from a year ago. The
increase was primarily attributable to higher realized prices and increased
gas production. Future cash flows will be influenced by product prices and
production and are not presently ascertainable.
At June 30, 1996, the available commitment under the Partnership's
reducing revolving credit facility was $10.2 million. The available
commitment reduces by $1.3 million per quarter, with the outstanding loan
balance to be repaid by July 1998. During the first six 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 June 30, 1996. The credit
facility had an average rate of interest of 6.186 percent during the second
quarter of 1996 which compares to an average rate of 6.83 percent a year
ago. The Partnership will attempt to maintain availability under its
credit facility as cushion for unforeseen expenditures and contingencies.
6
(Page)
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.
As provided in the Amended Partnership Agreement, Investing Partners
will have a second right of presentment during the fourth quarter of 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 half of 1996, the Partnership's oil and gas property
additions totaled $.2 million. 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
anticipates oil and gas property additions will total approximately $1
million to $1.5 million in 1996. The anticipated capital expenditures are
primarily attributable to new well drilling on South Timbalier 295 as well
as miscellaneous recompletions on other Partnership properties. Such
estimate 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 expects to make another distribution in the fourth quarter of 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.
7
(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.
8
(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: August 13, 1996 /s/ Mark A. Jackson
------------------------------------------
Mark A. Jackson
Vice President and Chief Financial Officer
Dated: August 13, 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 SECOND QUARTER 10-Q
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1,000
<CASH> 1,000,104
<SECURITIES> 0
<RECEIVABLES> 2,747,584
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,747,688
<PP&E> 162,003,789
<DEPRECIATION> (153,624,532)
<TOTAL-ASSETS> 12,126,945
<CURRENT-LIABILITIES> 589,702
<BONDS> 2,550,000
0
0
<COMMON> 0
<OTHER-SE> 8,987,243
<TOTAL-LIABILITY-AND-EQUITY> 12,126,945
<SALES> 9,816,730
<TOTAL-REVENUES> 9,816,730
<CGS> 3,246,466
<TOTAL-COSTS> 3,246,466
<OTHER-EXPENSES> 265,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211,437
<INCOME-PRETAX> 6,093,827
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,093,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,093,827
<EPS-PRIMARY> 3,822
<EPS-DILUTED> 3,822
</TABLE>
